Our forecast is for pension funds to become as big a weight on the economy as they were a boon in the heyday of the old bull market. This reversal certainly appeared in the initial stages of the bear market and the article shows that a Pandora’s Box of pension-related woes are now being revealed by the next phase of decline. Our guess is that the public pension fund problem will be even more pronounced than the private pension fund problem that was discussed here on November 16.
In addition to government’s propensity for playing the role of the “ultimate crowd” (see discussion of pension fund reforms on August 2), there is the fact that it is populated by public servants who will do everything in their power to hang on to the fat pensions that are the primary perq of working in government. The only answer is a drastic slashing of benefits but with every politician having a vested interest, it won’t happen fast. Electing new leaders with the necessary courage will take time. Once they’re in place, taking on bureaucracies with exceedingly well-developed survival instincts will also be problematic. By the time the necessary changes are in place, pension fund assets will have been vastly devalued. Meanwhile, governments will have found all sorts of ingenuous ways to make the worst of the predicament that is just starting to come into view in San Diego.
The story at left says the pension fund “shortchanging” in San Diego is going on in states, counties and municipalities across the nation but “without the crippling scandal – at least not yet.” But as the discussion of the bear market fallout in this month’s issue of The Elliott Wave Financial Forecast reveals, the unfolding downturn will eventually expose the full depth of the pension fund crisis. A related scandal, the stock option “backdating” probe, demonstrates the power of the recriminatory forces that are now being unleashed. Accroding to today’s NY Post, Cablevision, “the latest company to become embroiled” in the probe, is being investigated for options pricing transgressions that date back as far as 1997, the same year that the The Elliott Wave Theorist first used the word “mania” to describe what was going on in the financial realm. “There is a qualitative difference between a bull market and a mania,” EWT explained in May 1997. “A mania is not simply a ‘big bull market.’ It is something else, and it not only behaves differently, but it resolves differently as well, which is why the difference is worth knowing.” One key area of resolution is a re-balancing of ethical standards that were stretched to their limits in the mania. These standards are now being pulled back into alignment by the intial thrust of a third wave decline, generally the most powerful in a typical five-wave sequence. Since many pension funds were so perfectly in stride with the mania, skipping from tech stocks in 2000 to real estate in 2002 and commodities in 2004, many fund managers don't yet fathom how exposed they are. In many cases, the illicit actions took place so long ago, many probably won't even remember them. But many administrators are about to discover there is no statute of limitations on pension fund transgressions. |
