Saturday, February 7, 2009

Rogue Wave Alert

Something has changed in the last 48 hours. I can feel it in my bones. Can you feel it too? The collective "we" have taken our eye off the ball. Energy waves that propagate through civilizations as described by Martin Armstrong are crossing right now to form a deadly rogue wave. Will it hit us this week? I don't know. Soon I think.

One wave that is peaking right now is that which led Obama to the presidency and the democrats to control of the congress. It is the wave that has made us into Bailout Nation. It is the wave of the little guy saying "give me some".

The converging wave is the reality of the mess that our monetary system, our banking system, our stock market system, and our international system of trade is facing. That reality and the stimulus bill in Congress are going to cross any day now.

We are told that one wave is peaking while the other is troughing, and that when combined, they will have a calming effect on markets and the economy. But the fact of the matter is that one does not even begin to counter the causes and effects of the other. As the amplitudes cross, they will combine in unexpected ways. And there are other waves converging as well, which Armstrong describes in "It's Just Time".

One thing I think we will see very soon is that the private pension funds that are in big trouble will soon announce their troubles. It's like the homeowner wondering if it is time to stop paying his mortgage, so that he can get his piece of the bailout money.

The public pension funds cannot hide their bad performance. But the private ones have been lying about their performance for more than a year now. And I'm sure they are discussing the merits of "coming clean" right now so that they can get some attention from their "rich uncle Sam". This would mean announcing their true funding level and cutting benefits as well as cash out values by 50% to 75% and then hoping for a bailout.

Bob Chapman made some comments regarding the Reason article, The Next Catastrophe, which I mentioned recently:
The next bomb to hit will be the pension bomb. Both the stock market and bond markets are headed much lower; 50% lower. That is bad news for pensions and insurance companies, as well as anyone invested in those markets. The only thing left that is safe are gold and silver assets.

The implosion will probably begin in state, local and private pension plans. Good portions of their assets are illiquid, perhaps 15% to 20% and there is no telling how long they will remain that way.

Last year funds lost about 30%, the worst year on record. Cities such as Vallejo, California has filed for bankruptcy, and CALPERS lost 35%. San Diego is on the edge of disaster as well.

America’s 500 largest companies have a deficit of $200 billion in their pension plans. We would guess that if our prediction of a 4,000 Dow becomes a reality that the deficit would rise to $400 to $500 billion. Those with defined-benefit pensions may soon find themselves choosing between making payroll or pumping money into their pension plans. You know what the companies will do – stop contributing. As usual government will let them off the hook. They may cut benefits by 50% to 75%, so get ready for it. It’s when government decides to cut back on Social Security, Medicare, Medicaid, etc., that the real revolution will get underway. We predicted all this eight years ago and it will soon come to pass.

Only 19% of corporate workers have pension plans. The retirement system of 2,600 public pension funds, federal retirement accounts and union-based defined benefit plans and union pensions are worth $4.5 trillion. They cover 27 million people or 30% of the $15 trillion held in retirement accounts. Many of the pensions were heavily into socially responsive investing, which has proven to be an expensive experience. The most aggressive has been CALPERS, which lost 35% last year. Others were AIG, Citigroup and Bank of America, all of which are bankrupt. Social issues should play no part in investment decisions, especially when it is someone else’s money you are losing. It is not the intention of retirement pools to become political footballs. Over a 20-year period public pension plans earned rates of return substantially below those of other professionally managed funds. This is a result of political pressure and outright payoffs. CALPERS sold all their tobacco stocks and following that tobacco stocks rose 250% versus S&P and 500% versus Nasdaq. Financial stocks were just right for pension and profit sharing funds. We do not have to tell you what a disaster they’ve been. The geniuses at CALPERS had 25% of its $20 billion in real estate assets in the California market that is still a long way from the bottom with no buyers in sight. What happens when there is a shortfall in pension assets is that taxes are raised. The pension bomb is on the way. Within two years the worst will begin to be realized.

As I said, the trick is to get out while they are still lying. I don't expect that a bailout of the pensions will be great for the pensioners. It will probably be more like the nationalization of retirement money in Argentina. The government will likely put this pension capital to good use, just like all that money in the Social Security Trust Fund, and then it will guarantee you some fraction of what you were supposed to be getting, perhaps 50%. And it will also take away the option to cash out and manage your own money. Essentially, they will take in several trillion worth of capital, spend it, and then print fresh money to make monthly payments to you and others.

For the last 20 or so years, the game the unscrupulous rich would play was to park their wealth in offshore accounts. Cayman Island accounts or numbered Swiss bank accounts. This would shelter their money from the prying eyes of the IRS. Then they would invest that money in large IPO's (Initial Public Offerings) offered only to insiders. Those investments would show up on the books simply as "foreign investments". Then they would watch their money grow 50 to 100 times larger. A $10 million investment of this kind could make a man a billionaire in just a year or two, all tax free.

If this makes you angry, just know that this game is now over. These offshore accounts are now dumping their American clients in ways that are visible to the IRS. It's all about the Swiss banks protecting themselves now, and not their rich American clients. Additionally, there are no more explosive investments (like the Google IPO) for them to grow their money in. Just like you and me, these super rich are watching their wealth shrink.

The good news is that there is a similar investment opportunity for us now. If you have anywhere from $1,000 on up to about $250,000, you can do what the super rich did in the 1990's. If you have more than that, it will be a little more difficult to get the same benefits I am talking about. But don't wait too long. The window of opportunity is closing. The rogue wave approaches.

Need I say more?


Disclaimer: The above is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the author alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.


Anonymous said...

where is the best investment?

FOFOA said...


I am not an Investment Advisor, so I recommend that you do your own due diligence.

You could start by reading this.


SatyaPranava said...

good legal cover, there fofoa :)

tell me, in all these discussions about pensions, i keep seeing them regarding state and municipal pensions, etc, but not regarding federal pensions. since a significant # of coming retirees are on the feds' books, how might the federal pensions look?

FOFOA said...


I believe all pensions will be monetized in a futile attempt to quell civil unrest. But pensions are FIXED BENEFITS programs. So pensioners will never be protected against hyperinflation. They will be guaranteed one roll of toilet paper per month for life.

All pensions are very poorly funded. Most private ones are about 30% to 40% funded in my guesstimation. By law they are required to remain 100% funded. They exist for the skimming rights of the pension administers. Federal pensions are about 0% funded, including Social Security. These will be monetized first, then states, then private pensions, after any remaining "real money" has been confiscated from the funds by the government. Just like Argentina.

The pension fiasco is an ugly ugly underreported scene. It is a nuclear time bomb with an unknown timer.


SatyaPranava said...

well i just pray my parents can survive in their retirement. they are retired bureaucrats who've listened to me predict things (only because of the giants and those amazing analysts and investigative reporters who report thereon) for some 12+ years now. they usually figure it out a few years later.

they are now selling their paid off house in the midwest and heading to buy a place in sedona on a fed retirement plan...and they have told me i worry too much, and they'll be fine.

i hope they're right :) but i don't worry about me. i worry about them, and i'm only a damn student :)

but you confirm my suspicion. we'll see how it plays out for them.

FOFOA said...

As long as the new house is either paid off or on a fixed-rate loan they should be fine. Encourage them to invest at least 1% in gold. That's not much to ask.

FOFOA said...

Most people are willing to spend $5,000 to $10,000 per year insuring their homes, cars and health. If they understood that their pension is at least as likely to become worthless as their house is to burn down, how much would they be willing to spend insuring that?

If I had a pension I could not cash out, I would feel good if I could put 10% per month into physical gold. I think that would essentially insure one year in the future for each month I contributed.

You don't have to invest 90% of your wealth in gold to insure against our government. That is a play to get on the receiving end of the massive transfer of wealth. 1% to 10% is good insurance. And it has always been fairly standard investing advice.

In Zimbabwe the government pensioners still receive $5,000 per month today. Unfortunately it takes $1,000,000,000,000 to buy a loaf of bread.

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