Posted on 11/20/2008 12:29:36 PM PST by SmithL
Forbes.com has a lengthy piece that tries to devine whether another catastrophe will deliver a final blow to the economy before recovery starts. CalPERS is mentioned in the piece.
John Osbon, one of the experts on Forbes' "Investor Team," says, "I can imagine CalPERS or TIAA-CREF making some announcement that they are cutting benefits and payouts by 30% due to investment losses, non-functioning markets and so on. That would be a real hit with real money."
This strikes us as a bit ignorant, since CalPERS pension benefits are guaranteed. The fund can't simply "announce" a cut . . .
(Excerpt) Read more at sacbee.com ...
By whom?
This debacle has more shoes dropping than Imelda Marcos!
That’s another problem for Cal-ee-fornia.
And why is this going to happen?
Because they thought that buying commodities indexes was “investing.”
When commodities returned to trendlines (as they always do), the fraud of “investing in commodities” was exposed and these guys, along with a lot of other people who confounded investing and speculation were taught a lesson.
It doesn’t make sense to me that TIAA-CREF would go under. They’re fairly conservative.
Good question, something the article writer should ask himself. Then again, I doubt he's read "Atlas Shrugged".
The guarantee on CalPers is only as good as the State of California's credit rating.
An interesting insight.
That’s what I was thinking....there are only two things in life that are guaranteed:
death and taxes.
True, and Obama is going to tax us to death.
Yes. They are one of the most stable, conservative firms out there.
Maybe the author doesn’t understand the diffrence.
I assume the CalIPERS (sp?) is a pension.
TIAA-CREF is not.
CalPERS Loses 35 Percent of its Portfolio Value
The decrepit legislators will figure out a way to ‘save’ calpers and use the money to bailout the shortfalls.
The possibilities are three:
1). The Pension Benefit Guarantee Board (PBGC), a qusai-federal agency, which limits it's guarantee to ~60K per year;
2.) The State of California, or some state agency, which could either legislate itself a solution or file a Chapter 9; or
3.) A private insurance fund, which could file either Chapter 11 or Chapter 7.
ping
Taxpayers in California guarantee CalPERS.
The government said so. Thus, the guarantee is Holy Scripture. ;)
CalPERS is the California Public Employee Retirement System. Participants are (were?) guaranteed a certain rate of return. IT is a large fund, essentially, that owns stocks, bonds, and other assetts.
The pensions of California government employees are run out of it.
Say you contribute 10% of your salary for 20 years, your agency matches it, both are guaranteed to grow at 8% a year.
Years when it goes up 10% the fund keeps the extra.
Years when it underperforms the taxpayers make it up.
When you hit retirement age (age 50 for some gvt.employees!! LOL!) your total converts into an annuity.
I believe the guaranteed return part may have been ended a few years ago, or ended for new employees, not sure.
Anyway, all moneys are in a giant fund. Now the fund is broke. But because of how the contracts were written all those years the State must pay them if the fund cannot.
Ooops!
Should be fun to watch. It was a model for other states. Oregon copied it and it almost bankrupted them in the mid 1990s.
Oregon PERS has lost 20% as of OCT 1. No telling how bad their hole is now.
Please explain the distinction.
Yikes!
Don't tell CalSTRS. They just announced a 5% increase in benefits to their union members.
When you invest in something, you’re putting your money into a business that you expect will see a secular, (ie, long-term, spanning cyclic activity) growth.
eg, if you invested in (eg) food companies because you see a long-term upward trend in population, that’s an investment.
If you’re putting money into an instrument (whatever it might be) based on a short-term expectation of a price perturbation, that’s speculation. You have no long-term or fundamental thesis in which you’re placing your money - you’re simply betting that your target instrument is mis-priced or will change in price in a way that you believe you see that others don’t.
People who buy futures/options/etc in commodities, but who do not use or create the physical commodities are speculators. There is nothing wrong with speculation, and it requires speculators to help create liquid markets in commodity futures. But various pension and hedge funds created this idea that commodities are an ‘investment’ - much the same way that some outfits advertise gold as an ‘investment’ — they aren’t. They might be a hedge against inflation, they might be a speculative flip based on market dislocations (eg, wheat last year), but there is no long-term increase in value.
These funds traded on the idea that commodities are ‘investments’ - like buying shares in a company that makes something tangible and unique and keeps growing their sales/profits over the long term. Commodities aren’t investments. You can make money in commodities, but NOT by merely “buying and holding.”
The CREF part holds a diversified stock portfolio so its fate is the same as the market. I am not sure about the TIAA component. I have heard rumors that the AIG bailout helped TIAA. TIAA-CREF also has single premium immediate annuity policies that may be severly impacted by the financial crisis.
The California taxpayer guarantees Calpers.
We are in such deep doo-doo with these clowns...
If they bought a lot of subprime mortgage crap with AAA rating by Moody’s, they may have mistakenly THOUGHT they were being conservative.
see #27
GUARANTEED!
Not bad considering S&P500 is down 49%
I would expect that Calpers has much more exposure to the types of problems you are talking about. Calpers is a defined benefit retirement program. They also have health care and long term care insurance.
TIAA-CREF, on the other hand, is defined contribution retirement plans. Their real estate fund has been perking along at around 9 or 10% or so. It’s only recently where its share price went from about 315 to 290. Hardly a disaster. Even if it goes to 100 it is individual contributors who will take it in the pocketbook. The TIAA component is in bonds. Yes, they have annuities but much of the money they are running belongs to individuals and they make money managing that money.
I would love to hear from any freepers who have more information on TIAA-CREF.
Good summary, Jack.
You left out the skimming actually sucking of funds by Ron Burkel and his crooks like Bill Clinton and some real swamp land investments during the Clintoon/Gray Davis raping and pillaging of CalPers.
The next DOW floor will be around 7200.
Interesting. Corporate book value has nothing to do with stock pricing now. Stocks worth 20.00 plus on the books will soon be trading for less than $1.00. Many are at between 1 and 3 bucks as of today with the DOW at 7900.
There never has been a better time to buy stock, so much so that many corporations are buying their own shares back at these discount prices.
Market prices have detached themselves completely from book value on stocks that pay 6% dividends.
The MARKET is bonkers.
The rules of supply and demand on the market have no meaning except that the market itself has become a non-market for share trading as far as corporations are concerned.
Takeovers will soon become endemic.
Invest in companies that are raising capital through preferred share new issues to fund and perform takeovers.
Some of these doing so are Insurance Companies like Great West Life.
Twenty years ago, Japan was at 40,000.
There have been some failed rallies to 20,000.
Now below 10,000.
Bad decisions may keep it down for twenty more years?
http://news.bbc.co.uk/2/hi/business/2828189.stm
Forbes had an article 4 years ago on this, and on the other cities where a bust is about to happen. Wish I’d kept the article.
If so, we baby boomers will never be able to retire. WOrk into the grave.
I need to change careers and become a sailboat charter Captain out of the BVI!!!!!!
A pity that Ron Burkel/Clintoon/Gray Davis' raping and pillaging of CalPersw will never be prosecuted.
“A pity that Ron Burkel/Clintoon/Gray Davis’ raping and pillaging of CalPersw will never be prosecuted.”
The elite liberals in charge of congress and the msm with the back stabbers on our side will put the blame on GW and Chaney.
Why doesn’t the state of California declare itself a bank and apply for TARP funds?
I don't work for them, but someone in my household does.
They are a conservative, solid company.
The points you made are correct; they are a very solid company.
And they are not a pension, unless they manage someone else’s pension.
Is there a real summary of the size and identity of the investments by CalPERS? Really, as a tax payer in this worthless state....where the Hell did the money go?
I’m sure there is such a list, but I don’t know where it is. I do know that they added a bunch of unions reps to their board a couple of years back, who steered CalPERS to a bunch of PC investments.
My wife has an defined-contribution plan with TIAA-CREF, allocated at 50% stocks and 50% bonds ever since it started. The stock part was way down as of a couple of months ago, but the bond part stayed the same (if I remember correctly), and the combined account is down 30%. TIAA-CREF advisors came to the workplace to have discussions with the employees, and actually advised them not to even look at their quarterly statements for another year or two. People were in shock, especially since they had always believed the nonsense about TIAA-CREF being a very conservative, safe company.
“People were in shock, especially since they had always believed the nonsense about TIAA-CREF being a very conservative, safe company.”
50% in bonds and 50% in stocks seems like a conservative allocation.
Planning for a Dow going from 14,000 to 8,000 is pretty tough to do.
Everyone assumed that “conservative” meant selling the stock before it went down 45%, rather than riding it down. We are not aware of the necessity to tell them to go to cash when conditions aren’t right for stocks. I don’t own stock directly, but when I was helping a relative who was dabbling in them, we always tried to have a stop loss about 10% down.
The TIAA part is pretty conservative but they have various fund options, some of which are more aggressive than others.
Their real estate fund has been fantastic. They own a lot of commercial buildings and the fund has averaged at least 9% a year for a long time. Sometime this summer, I think around August, the curve began to flatten out. It was the first time it had gone down in years. It’s only down now about 7% so far this year. Some of their stock funds are waay down.
(Fidelity’s real estate fund, OTOH, has been a disaster.)
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