Russ Towne's InvestmentThoughts: Ticking Pension Bomb
Russ has presented good data about under-funded pensions. However, BULLS are aware of how fast these pension funds can recover. The obligations grow slowly for short-term employees. When employees reach 20 to 25 years of service, the obligations grow geometrically. Therefore, many big companies go through a ritual of scaring long-term employees every so many years. These employees are faced with a potential lay-off or they might choose to take an early retirement bonus. The obligations to the company pension plan are cut sharply when these long-term employees leave.
When growth occurs and young workers are hired, money is contributed for the new workers but many of those do not ever work long enough to draw a pension. Furthermore, in a good market the pension assets enjoy capital appreciation. The amount of under-funding can drop during a good market and in a very good market the company might take excess contributions out of the fund. Company earnings thus look extra strong during a good market.
It is commonly reported that $1,500 of every GM car made now goes to pay retirement and health benefits. This is old news. Most of the money required to be paid was accumulated years ago. The rate of increase in the problem has dropped. In the years ahead, as more of the long-term employees retire, the percentage of cost in this area will decline.
Stock investors should worry when pension accounts are over-funded. This is when stocks trade too high based on the extra pension account earnings. When there is "blood in the streets" in regard to pensions, it is time to buy stocks.
BUY THE BIG BULL BOOM BUBBLE. A LOT OF MONEY WILL BE MADE IN THE NEXT THREE YEARS.
Russ has presented good data about under-funded pensions. However, BULLS are aware of how fast these pension funds can recover. The obligations grow slowly for short-term employees. When employees reach 20 to 25 years of service, the obligations grow geometrically. Therefore, many big companies go through a ritual of scaring long-term employees every so many years. These employees are faced with a potential lay-off or they might choose to take an early retirement bonus. The obligations to the company pension plan are cut sharply when these long-term employees leave.When growth occurs and young workers are hired, money is contributed for the new workers but many of those do not ever work long enough to draw a pension. Furthermore, in a good market the pension assets enjoy capital appreciation. The amount of under-funding can drop during a good market and in a very good market the company might take excess contributions out of the fund. Company earnings thus look extra strong during a good market.
It is commonly reported that $1,500 of every GM car made now goes to pay retirement and health benefits. This is old news. Most of the money required to be paid was accumulated years ago. The rate of increase in the problem has dropped. In the years ahead, as more of the long-term employees retire, the percentage of cost in this area will decline.
Stock investors should worry when pension accounts are over-funded. This is when stocks trade too high based on the extra pension account earnings. When there is "blood in the streets" in regard to pensions, it is time to buy stocks.BUY THE BIG BULL BOOM BUBBLE. A LOT OF MONEY WILL BE MADE IN THE NEXT THREE YEARS.
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