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Bridgewater Warns on Pensions

Since the financial crisis, there haven’t been too many warnings about the dim prospects for pension funds living up to their long-term promises as a result of their overly optimistic assumptions about rate of return, however, Bridgewater reinvigorated the debate as recounted in this USA Today story today that might make some Holiday Inn Express patrons choking on their cinnamon rolls.

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades.

Bridgewater came to these conclusions by stress testing the nation’s public pension plans, much the way banks need to be evaluated on what could happen given a wide range out outcomes.

Public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades, Bridgewater says. An investment return of roughly 9% a year is needed to meet those onerous obligations.

This is just one more reason why the U.S. has a national imperative, ably assisted by the folks at the Federal Reserve,  to create bigger and bigger asset bubbles.

How else are pension funds going to pull this off?

Bloomberg editor-at-large and TV host Trish Regan shares some insight on what’s roiling the stock market these days in this commentary at USA Today that is full of contradiction that quickly becomes apparent in the first two paragraphs which, by themselves, may be enough to send investors scurrying back up to their hotel room to sell some tech stocks.

Use of the term “virtual” was prompted by the recent Facebook acquisition of Oculus, the virtual reality headset maker, however, it was probably ill-advised to combine virtual with insanity when referring to bubbly tech stocks.

The recent sell-off in names such as Amazon, Facebook and Netflix is spurring many to wonder whether investors are waking up to the virtual insanity that’s gripping the technology space.

It’s still too early to tell how this plays out; however, there are signs that suggest investors should proceed with caution.

Take the new term to describe a hot new tech company. Forget start-up or pre-revenue. Instead, try this: pre-product. It carries more cachet.

With U.S. markets opening just a short time ago, stocks are shrugging off their recent difficulties and the latest developments in Ukraine, but that may not last.

If it doesn’t and this becomes a much more serious decline for share prices, at least we’ll have those wonderful images of people wearing Oculus headsets.

It’s just too bad that we couldn’t get anyone wearing a virtual reality headset to ring the opening bell on some stock exchange – that would have been priceless.

USA Today Is Concerned About the Market

With the first quarter rapidly coming to a close following a dismal IPO by game-maker Candy Crush (see No Sugar High For Wall Street: Candy Crush Maker’s IPO Disappoints), lots of people are again starting to ask unsettling questions about whether it’s going to be a good year or a bad one for their investment portfolios.

In this USA Today interview, the normally upbeat Adam Shell sounds downright bearish.

There is no dearth of negative stock stories in the mainstream financial media lately and one has to look no further than today’s reports at CNBC where you’ll find the following items:

I suppose the scariest part about this is that policy makers at the Fed are privately giving themselves a little pat on the back in what, so far, appears to be a successful cooling of multiple asset bubbles that rapidly inflated last year.

Of course, the operative words in that last sentence are “so far”.

This item at The Economist carried the chart below with the latest home price data that was released earlier in the week by S&P Case-Shiller.  A similar chart has appeared here many times over the years, however, I haven’t seen fit to update it in quite some time, so it was kind of interesting to see it done elsewhere.

It’s interactive at the Economist, so, you can turn curves for individual cities off and on. In doing so, I couldn’t help but notice how California’s resurgent housing bubble is outpacing the rest of the country (as it’s done twice before in recent decades, first in the late-1980s and then again in the early- and mid-2000s).

The slope of the curve for San Francisco (light blue) has been steepest in recent years, but Los Angeles (light green) and San Diego (dark green) are not far behind with the former recently outpacing the Washington D.C. area for best recovery so far.

Interestingly, a check on Zillow for the house in Southern California that we sold a decade ago puts its value at just a few thousand dollars less than what we sold it for.

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