[topcat]

Here is something I read several years ago and have taped to the bookcase above our PC.

"Assuming 2% annual inflation, the amount you'll need to withdraw from your portfolio 20 years from now to equal $40,000 in today's dollars: $59,000"

That woke me up!

[MrBill]

cube, the dirty little secret is that we live in the here and now. the past is gone and the future does not exist. the same goes for our investments. future returns are by their nature uncertain. therefore any retirement plan by definition expects to a greater or lesser extent that the future will look something like the past. as you point out that is an assumption. only through broad diversification can one hope that not all assets will sink in value at the same time and at the same rate. and, of course, if all assets do sink in value then it is better if your's only drop by half, while everyone else's sink in value by three-quarters. wealth is relative.

[shakespear1]

Roy and Heineken

If you guys follow the discussions on this forum you should have a fairly good idea of where we are heading and where it makes sense to invest.

Oil will need to be pumped, electricity will need to be generated, things will need to be transported etc. Hence, companies that are good at doing these things will not go out of business and will be good places to park your money.

Just my view of where to go with ones retirement portfolio. As an example, railroad. Trucking is in trouble. Railroad will grow and contribute more and more with time. I wouldn't be surprised if in the near future the highway system wasn't modified to enable its use in the rail transport. Just brain storming.

[Cog]

I agree with your views on railroads. You could easily modify 2 lanes of an existing four lane interstate and put a train on it. All you need is a solid base(which you have) and a method to attach rails to concrete. So you really wouldn't need new railroad ROw and the attendant acquisition problems.

[MrBill]

You could call it a... tram! ; - ))

[BigTex]

As some of you know I am a retirement plan attorney and deal with both public and private retirement plans.

I don't have time right now to really dig in to many of the issues that have been raised above, but let me touch on a few of them:

- the whole concept of participant directed investments such as in the U.S. 401(k) plan system is a complete disaster. Trusting investment decisions to the individual works well some of the time, but usually produces lower returns over time than professional management as a result of individuals chasing returns and just churning their accounts in general

- traditional private defined benefit pension plans (where the benefit is determined by a formula) are fantastic, except Congress has made it almost prohibitively expensive to start or maintain one. Thus, these are a dying breed, which is unfortunate. The problem with most of these private plans is that they do not provide cost of living increases, which is a big problem

- public sector pension plans are wonderful (non-Social Security plans--military, police, fire, government employees, etc.), primarily because so many of them provide cost of living increases and most are funded reasonably well. However, as this thread has touched on, the cost of these plans depends upon tax revenue that may or may not be available in the future.

- all pension funding (non-401(k) I mean, where the employer is the one deciding how to invest the pension plan's assets) suffers from one ENORMOUS problem, and that is that the way these funds are invested (typically 50-60% stocks) means that right when the company or the government entity can least afford additional contributions (during a recession when business is bad and tax revenues are down) is when huge additional contributions are needed because the same economic conditions that led the company or governmental entity to be in financial distress are also causing the value of the pension assets to decline. This is a HUGE problem and I will see if I can post more about it later, but in a long term economic slowdown this one issue, even for fully funded plans, could be a disaster. Picture the "tail wagging the dog" scenario, except picture the dog's tail increasing to 10 times its normal size while the rest of the dog stays the same (or maybe even shrinks a little).

[vision-master]

$this->bbcode_second_pass_quote('', '-') public sector pension plans are wonderful (non-Social Security plans--military, police, fire, government employees, etc.), primarily because so many of them provide cost of living increases and most are funded reasonably well. However, as this thread has touched on, the cost of these plans depends upon tax revenue that may or may not be available in the future.

[MrBill]

$this->bbcode_second_pass_quote('', 'T')oo young to retire, too old to get a new job. That's how many older workers are feeling these days.

While it's not easy to land a job in this weak economy, older workers are in a particularly tough spot. Corporate downsizings are hitting this group hard, with many companies looking to shed the higher-paid positions these employees often occupy. Even worse, older job seekers are discovering the search is even rougher as many employers shy away from hiring those closer to retirement than to the start of their careers.

The downsizings come at a bad time for older workers. Not only can't they afford to retire, but many were counting on beefing up their 401(k) accounts in the years before they exit the labor force. Compounding the problem is the slumping stock market, which has left them with a deflated 401(k) cushion to draw on while looking for a new post.

[BigTex]

Unfortunately, I would say that perhaps 50% of the problems with the U.S. retirement system (other than Social Security) are STRUCTURAL in nature, and the remaining 50% of the problems are the result of poor decision making in funding and investment of assets.

The trouble is, if I am right, even if everyone got smart tomorrow, 50% of the problem--the STRUCTURAL aspect--would remain in place.

It's a very thorny problem.

For anyone who wants to know the one sweet deal left--ROTH IRAs and ROTH 401(k) CONTRIBUTIONS.

Taxes are lower now than they are possibly ever going to be again. With a Roth, you pay the tax on the contributions now and earnings are tax free forever. It's the best deal out there. This strategy rests on the assumption that going forward the federal government is going to spend more than it can take in in taxes or borrow, requiring tax increases. That is, to me, a very safe assumption to make. There are counterarguments to making Roth contributions, but I do not find any of them persuasive for most peoples' situations, and I believe that this is a window of opportunity that will be closed in the next 5-10 years.

[vision-master]

Too bad I only acquired 6 years service with a "basic" Public pension plan. The fund stopped allowing new members in 1978.

My father had 30 years service under this plan and received 70% of his wage at time of retirement in 1977. The was just a average J6P kind of guy. My 89 year old Mother is still drawing over $1,400 Month from this plan.

Ya, the good old days.

[cube]

$this->bbcode_second_pass_quote('BigTex', '.')..
For anyone who wants to know the one sweet deal left--ROTH IRAs and ROTH 401(k) CONTRIBUTIONS.
...

[BigTex]

$this->bbcode_second_pass_quote('cube', '')$this->bbcode_second_pass_quote('BigTex', '.')..
For anyone who wants to know the one sweet deal left--ROTH IRAs and ROTH 401(k) CONTRIBUTIONS.
...

[shakespear1]

Here is one ETF that will short the market

DXD - Double the market

[MrBill]

JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County
The Law of Good Intentions and Unintended Consequences at work!

$this->bbcode_second_pass_quote('', '
')Seeds of Crisis
The seeds of Jefferson County's debt crisis were planted in December 1993, when three citizens filed a lawsuit against the county commission , alleging untreated sewage was being discharged into the Black Warrior and Cahaba rivers during heavy rains, in violation of the federal Clean Water Act.
The U.S. Environmental Protection Agency in 1994 joined the taxpayers who filed the complaint. In December 1996, the county settled the case by agreeing to build a sewer system for collecting overflows and cleaning the water.
In 1997, the county began selling bonds to raise money for the project. Most of the bond sales, all done without competitive bidding, were arranged by Charles LeCroy, a banker at St. Petersburg, Florida-based Raymond James & Associates Inc.
(continued)

By November 2002, the county had issued $2.9 billion in sewer bonds, with an average rate of 5.25 percent; the cost of building the sewer system doubled from initial projections. Meanwhile, LeCroy had been hired by JPMorgan, taking the county's debt work with him.
``Jefferson County became a cash cow,'' says County Commissioner Shelia Smoot, a Democrat.
In 2002, with municipal bond interest rates near a 34-year low, LeCroy told Jefferson County officials they could save millions of dollars by refinancing their sewer debt. He recommended that the county use a combination of adjustable-rate bonds and interest-rate swaps.
The officials took JPMorgan's advice, and in 2002 and '03 Jefferson County issued $3 billion of adjustable-rate bonds, including $2.2 billion of auction-rate securities, bonds whose interest rates reset at periodic auction sales by banks.
(continued)
Those bonds provided the banks with about $55 million in fees, county records show. JPMorgan sold Jefferson County $2.7 billion of interest-rate swaps, Bank of America sold the county $373 million in swaps and New York-based Lehman Brothers sold the county $190 million more.
The swaps, if they worked as designed, would allow Jefferson County to pay about 4.2 percent on its debt for 40 years.
Jefferson County was so enthusiastic about its sophisticated debt management techniques that in 2003 and 2004 it held ``Investor Relations'' seminars each year in a Birmingham hotel.
The events were sponsored by 32 banks, advisers, law firms, bond insurers and rating companies, including CDR Financial Products, the county's Beverly Hills, California-based swap adviser, Bear Stearns and JPMorgan. County officials solicited sponsorships, including $27,000 from JPMorgan, $15,000 from Bear Stearns and $10,000 from CDR.
``We have so many little municipalities around here that can't afford to go for any kind of training,'' says Linda Goldblatt, the county's investor relations director. ``We thought it would be a good idea to help get them some idea of what's going on out there.''

[MOCKBA]

$this->bbcode_second_pass_quote('MrBill', '[')b]JPMorgan Swap Deals Spur Probe as Default Stalks Alabama County
The Law of Good Intentions and Unintended Consequences at work!
Source: Default Stalks Alabama County

[MrBill]

MOCKBA floating rate debt based on LIBOR combined with interest rate swaps (IRS) are not terribly complicated. They just swapped fixed rate debt for floating rate debt, and then covered their interest rate gap exposure by buying an IRS. This asset swap lowered their overall cost of borrowing (5.25 to 4.40%) and should have been very straight forward had they just left well enough alone.

But this is government at work. BIC Syndrome - bureaucracy, incompetence and corruption. State or county officials wined and dined by fast talking salesmen, and the ever present boys from the backroom, pushing these public clerks into deals they do not fully understand, and then collecting outsized fees along with the kickbacks for the good ol' boys in the backroom. They probably felt very flattered that Wall Street were paying so much attention to them? JPM's name pops up again and again in these deals gone sour.

However, as the County bypassed the competitive bid system to do bilateral deals they violated probably rule number one of any competent purchasing manager or State Treasurer, and that is to establish a market and choose the best price. Usually the best of three quotes at least. This is just incompetence on the part of local authorities.

So a la Orange County the Prosecutor or whoever will simply try to prove that these Wall Street firms sold complicated products to end users that did not fully understand them. It is really a bullshit defense. The products themselves are very straight forward, and of course had they worked the way they were supposed to the County would have reaped the benefit of paying lower interest costs. Never the less as there has been fraud committed no doubt the prosecution will have an easier time pointing to the smoking gun of overpaying for those swaps and the allegation of collusion amoung firms.

Unlike marked to [s]model[/s] myth CDOs and CLOs that are hard to value in the absence of secondary market trading these simple FRAs and IRSs are easy enough to accurately value with one caveat. They are based on LIBOR (or sometimes FED funds) and banks have been systematically under-reporting LIBOR lately as they are rue to admit how much they themselves have to pay for interbank loans. Good if you're paying floating rates and receiving fixed payments. Bad if you're on the otherside and paying fixed while receiving floating rates.

But where these states and counties really got screwed is when the public auctions failed and no one stepped in as buyer of last resort. I cannot really blame the local authorities for that as it is a small probability event and hard to plan against versus the immediate need of having to secure low-cost financing for projects. Local authorities are always under pressure to do more with less. However, this illustrates how careful they should have been when negotiating these contracts. Now the taxpayer is on the hook and money going out to settle these deals is money not available to pay other expenses. The taxpayer always loses from BIC Syndrome, so I am at a loss why so many clamour for more government.

[pedalling_faster]

$this->bbcode_second_pass_quote('Heineken', 'A')dd that one to the list of doom factors!

[BigTex]

$this->bbcode_second_pass_quote('pedalling_faster', '')$this->bbcode_second_pass_quote('Heineken', 'A')dd that one to the list of doom factors!

[vision-master]

$this->bbcode_second_pass_quote('', 'P')rivate sector defined benefit pension plans are very safe. All of the risk is on the employer and the benefits are insured by the Pension Benefit Guaranty Corporation, which monitors private pension trust funding levels closely.