Tag: WSJ

Main Street Pensions Take Wall Street Gamble by Investing Borrowed Money

Mary Pat Campbell

Link: https://www.wsj.com/articles/main-street-pensions-take-wall-street-gamble-by-investing-borrowed-money-11630774800

Graphic:

Excerpt:

Many U.S. towns and cities are years behind on their pension obligations. Now some are effectively planning to borrow money and put it into stocks and other investments in a bid to catch up.

State and local governments have borrowed about $10 billion for pension funding this year through the end of August, more than in any of the previous 15 full calendar years, according to an analysis of Bloomberg data by Municipal Market Analytics. The number of individual municipalities borrowing for pensions soared to 72 from a 15-year average of 25.

Among those considering what is known as pension obligation borrowing is Norwich, a city in southeastern Connecticut with a population of 40,000. Its yearly payment toward its old pension debts has climbed to $11 million in 2022—four times the annual retirement contribution for current workers and 8% of the city’s budget. The city will vote in November on whether to sell $145 million in 25-year bonds to cover the pensions of retired police officers, firefighters, city workers and school employees.

….

In 2009, Boston College’s Center for Retirement Research examined pension obligation bonds issued since 1986 and found that most of the borrowers had lost money because their pension-fund investments returned less than the amount of interest they were paying. A 2014 update found those losses had reversed and returns were exceeding borrowing costs by 1.5 percentage points.

Author(s): Heather Gillers

Publication Date: 4 September 2021

Publication Site: Wall Street Journal

Social Security Costs Expected to Exceed Total Income in 2021 as Covid-19 Takes Financial Toll

Mary Pat Campbell

Link: https://www.wsj.com/articles/social-security-costs-expected-to-exceed-total-income-in-2021-as-covid-19-takes-financial-toll-11630436193

Excerpt:

Trustees for the Social Security trust fund in an annual report released Tuesday said the program is expected to pay benefits that exceed its income in 2021, the same as it anticipated last year at the outset of the pandemic.

While the pandemic had a significant impact on the program, the trustees said, they expect Social Security’s reserves to be depleted by 2034, only one year sooner than they estimated in their April 2020 report. Once the reserves are exhausted, benefits would be reduced automatically unless Congress steps in to shore up the program, which lawmakers have done previously.

The trustees now project elevated mortality rates related to the pandemic through 2023, and expect lower immigration and child-bearing this year and next, compared with their 2020 estimates. They also expect the pandemic has lowered worker productivity and thus economic output permanently.

Author(s): Kate Davidson

Publication Date: 31 August 2021

Publication Site: Wall Street Journal

Something Is Awry in the Treasury Market This Summer

Mary Pat Campbell

Link: https://www.wsj.com/articles/something-is-awry-in-the-treasury-market-this-summer-11629034404

Excerpt:

The core of the problem is that as inflation soared, bond yields fell, creating an instant contradiction: Inflation is poison to bond investors, so they would normally be expected to sell. I have an explanation, but it isn’t perfect.

My take: Investors came to the realization that the huge post-pandemic debt burden will keep rates lower than in the past, while they kept faith that inflation will be manageable. There is little to indicate investors fear a recession-inducing mistake by the Federal Reserve, and they aren’t expecting runaway inflation either.

The market response from March to the start of this month can be thought of as pricing in a repeat of the secular stagnation brought on by the 2008 financial crisis, with the twist of slightly higher inflation than in the past decade.

….

And there is one more oddity that is far harder to understand: By Aug. 3, yields on 10-year Treasury inflation-protected securities, or TIPS, reached minus 1.2%, the lowest point for inflation-adjusted yields in history.

It could only make sense if investors were expecting stagflation, or weak economic growth combined with higher inflation. But if the risk of stagflation were rising, investors should be buying gold — which usually rises when TIPS yields fall — and dumping the junkiest corporate bonds, as defaults would be sure to rise. Instead, the relationship between gold and TIPS broke down, while junk bond yields rose only a little from what had been close to record low spreads over Treasurys.

Author(s): James Mackintosh

Publication Date: 15 August 2021

Publication Site: Wall Street Journal

China’s Corporate Crackdown Adds to Junk-Bond Distress

Mary Pat Campbell

Link: https://www.wsj.com/articles/chinas-corporate-crackdown-adds-to-junk-bond-distress-11629019801?mod=e2tw

Excerpt:

The latest Chinese market to buckle under pressure from Beijing’s wide-ranging corporate crackdown: junk bonds.

Companies from China make up the bulk of Asia’s roughly $300 billion high-yield dollar bond market, thanks to a surge in borrowing by the country’s heavily indebted property developers.

But the investor optimism that drove that borrowing has collapsed.

…..

The widening regulatory crackdown that sparked a big selloff last month in the shares of internet-technology and education companies has also weighed on Chinese credit markets, pushing down prices of even investment-grade bonds.

The moves show China is getting more serious about reining in companies whose business practices are seen at odds with national priorities. Investors are now actively looking for sectors that might be next in the crosshairs.

Author(s): Serena Ng

Publication Date: 15 August 2021

Publication Site: Wall Street Journal

Fed Says Economy Has Progressed Toward Goals, Tees Up Bond Taper

Mary Pat Campbell

Link: https://www.wsj.com/articles/fed-says-economy-has-made-progress-toward-its-goals-teeing-up-bond-taper-11627495233

Excerpt:

The Fed cut its benchmark interest rate to near zero in March 2020 and has been purchasing at least $120 billion a month in Treasurys and mortgage bonds to provide extra stimulus to the economy. Officials since the end of last year said those purchases would continue until they see “substantial further progress” toward their goals of low unemployment and stable inflation.

Officials said in a statement Wednesday, at the conclusion of their two-day meeting, “the economy has made progress toward these goals” this year and indicated they would “assess progress in coming meetings.”

That is a clue the Fed could outline plans to start reducing, or tapering, the purchases, later this year. The central bank’s next meetings are scheduled for Sept. 21-22 and Nov. 2-3.

Fed Chairman Jerome Powell said at a virtual news conference Wednesday that the central bank was nowhere near considering plans to raise interest rates.

Author(s): Nick Timiraos

Publication Date: 28 July 2021

Publication Site: WSJ

BlackRock Tweaked Some Models. It Triggered a Wave of Buying and Selling.

Mary Pat Campbell

Link: https://www.wsj.com/articles/blackrock-tweaked-some-models-it-triggered-a-wave-of-buying-and-selling-11625857596?mod=itp_wsj&ru=yahoo

Excerpt:

In late May, an obscure BlackRock Inc. commodities fund took in more than $1 billion in new money in less than a week.

The iShares GSCI Commodity Dynamic Roll Strategy exchange-traded fund was a relatively small fund in BlackRock’s larger suite of funds. But on the week of May 26, the ETF—which trades under the ticker COMT and tracks futures contracts tied to commodities from energy to metals to agriculture—scored its biggest one-day influx of new cash on record, according to FactSet data.

The surge helped the ETF more than double its assets under management to more than $2 billion.

The answer for why so much money flowed into the fund wasn’t solely because Wall Street traders were up in arms with inflation fears that were helping to drive idle funds into commodity investments. According to BlackRock documents and people familiar with the matter, BlackRock had sent instructions to brokerages and other financial platforms to alter a series of “model portfolios” to include this fund.

Model portfolios are ready-made fund combos delivered through financial advisers and brokerages to everyday investors. Brokerages can design their own model portfolios, or rely on guidance from fund companies like BlackRock. The May surge in the BlackRock fund shows just how powerful that guidance can be.

Author(s): Dawn Lim

Publication Date: 9 July 2021

Publication Site: WSJ

Accounting Regulator Had Climate of Fear and Distrust, Report Says

Mary Pat Campbell

Link: https://www.wsj.com/articles/accounting-regulator-had-climate-of-fear-and-distrust-report-says-11624918488

Excerpt:

The January report by former SEC Chairman Harvey Pitt lays bare deep divisions within the Public Company Accounting Oversight Board, which oversees the audits of companies valued in total at trillions of dollars.

It also alleges organizational dysfunction. There were no records documenting the rationale for several staff firings, and confusion about the roles of the PCAOB’s board members has “created some dysfunctional behavior” by them, the report found.

Current SEC Chairman Gary Gensler this month ousted William Duhnke as PCAOB chairman and is replacing the rest of the five-member board.

A PCAOB spokeswoman didn’t return a request for comment. An SEC spokesman declined to comment. Mr. Duhnke said he hasn’t seen the report and cannot comment on it.

Author(s): Jean Eaglesham, Dave Michaels

Publication Date: 28 June 2021

Publication Site: WSJ

India Has Undercounted Covid-19 Deaths by Hundreds of Thousands, Families and Experts Say

Mary Pat Campbell

Link: https://www.wsj.com/articles/india-has-undercounted-covid-19-deaths-by-hundreds-of-thousands-families-and-experts-say-11624795202

Graphic:

Excerpt:

India has officially recorded more than 390,000 coronavirus deaths, but families who have lost loved ones, health experts and statisticians say that vastly undercounts the true toll. Families like Mrs. Singh’s have been left struggling to get compensation that some states have set up for Covid-19 victims.

India’s undercount has also left a huge gap in the world’s understanding of the impact of the Delta variant, which health experts believe helped drive one of the world’s worst Covid-19 surges in April and May. India was the first to detect the highly infectious variant, which has hopscotched around the world. It is fueling a surge in the U.K., and is expected to become the dominant variant in the U.S.

The undercounting of infections and deaths is a problem world-wide, even in countries with widespread testing. The World Health Organization said last month that the global Covid-19 death toll could be two or three times the official number. The problem, however, is particularly acute in the developing world, where access to healthcare and coronavirus testing is often more limited.

…..
To qualify for its Covid-19 compensation payment of 400,000 rupees, equivalent to about $5,400, the state requires a report from a certified lab, which at the time were taking days to process.The family got a test strip from the lab indicating that Mrs. Singh was positive and rushed to a doctor.
……
Health experts say many Covid-19 deaths have gone uncounted among India’s vast population of rural poor, who have little access to healthcare or Covid-19 testing.

Mr. Banaji, the mathematician, says the central government has tended to praise states with low death counts and castigate those with higher counts as incompetent. “This narrative of success and failure centered on fatality numbers is very dangerous,” he said.

Author(s): Shan Li, Suryatapa Bhattacharya, Vibhuti Agarwal

Publication Date: 17 June 2021

Publication Site: WSJ

These States Lead the Way on Pension Reform

Mary Pat Campbell

Link: https://www.wsj.com/articles/these-states-lead-the-way-on-pension-reform-11624038916

Excerpt:

Arizona and Michigan have enacted more than a dozen substantive pension reform bills over the past five years. Credit-rating agencies and national retirement experts have cited Arizona’s public-safety pension reforms. Moody’s Investors Service gave Michigan’s teacher retirement reform a “credit positive” review because the state and participating local governments “will no longer carry the entire burden of investment performance risk for new employee pensions.”

Pension reform need not be partisan. After gaining input and buy-in from unions for police officers, firefighters and other public employees, New Mexico Gov. Michelle Lujan Grisham, a Democrat, overhauled her state’s public-employee pension plan for workers who aren’t teachers. “We must make changes now—the alternative is to saddle New Mexicans with unacceptable risk,” Ms. Grisham said, urging fellow Democrats to pass reforms. In 2018, Colorado legislators bridged their differences in a divided government to pass comprehensive reforms that increased employee and employer contributions, reduced cost-of-living adjustments, raised the retirement age, and expanded the use of defined-contribution plans for future employees to address the chronic structural underfunding of the state’s main public pension system.

Author(s): Leonard Gilroy, Steven Gassenberger

Publication Date: 18 June 2021

Publication Site: WSJ

ProPublica’s Plan for a Poorer America

Mary Pat Campbell

Link: https://www.wsj.com/articles/propublicas-plan-for-a-poorer-america-11623881781?st=0g4wamiq5m5ces3&reflink=desktopwebshare_twitter

Excerpt:

ProPublica substitutes a magazine’s estimate of wealth appreciation, which never appears on the stolen tax returns, to falsify income. Using this deception the site calculates its “true tax rate.” ProPublica laments that taxpayers are acting “perfectly legally” in not paying a federal wealth tax, which doesn’t exist.

That wealth is taxed only when converted into income or on death may be an outrage to those in government who want to spend that wealth, but it is a purposeful, enlightened policy that lets wealth work as the nation’s seed corn, making America the richest nation in the history of the world. That wealth in turn makes it possible for the government today to provide $45,000 a year in transfer payments to the average household in the bottom 20% of American earners.

….

Taxing wealth accumulation will mean less wealth accumulation, lower productivity growth, lower wages and a less prosperous America. If you had to pay a federal property tax on the appreciation of your home and the growth in the value of your retirement assets, farm and business every year, how could you or America ever get ahead? Private investment has created $32 trillion of equity wealth in America. “Public investment” has created $21 trillion of public debt.

Author(s): Phil Gramm, Mike Solon

Publication Date: 16 June 2021

Publication Site: Wall Street Journal

A Made-in-Washington Inflation Spike

Mary Pat Campbell

Link: https://www.wsj.com/articles/a-made-in-washington-inflation-spike-11623362377?mod=opinion_lead_pos1

Excerpt:

The Labor Department’s consumer price index surged 5% year-over-year in May, the largest increase since August 2008 when oil was $140 a barrel. But don’t worry, Americans. The Federal Reserve says inflation is “transitory” and that it has the tools to control prices if they start to spiral out of control. Let us pray.

Nobody should be surprised that prices are increasing everywhere from the grocery store to the car dealership. Demand is soaring as the pandemic recedes while supply constraints linger, especially in labor and transportation. As always, this is a price shock largely made by government. Congress has shovelled out trillions of dollars in transfer payments over the past year, and the Fed has rates at zero while the economy may be growing at a 10% annual rate.

The personal savings rate in April was 14.9%, double what it was before the pandemic. Record low mortgage interest rates have enabled homeowners to lower their monthly payments to burn more cash on other things. Congress’s $300 unemployment bonus and other welfare payments for not working have contributed to an enormous worker shortage, which is magnifying supply shortages.

All of this is showing up in higher prices. Over the last 12 months, core inflation excluding food and energy is up 3.8% and much more for used cars (29.7%), airline fares (24.1%), jewelry (14.7%), bikes (10.1%) and footwear (7.1%). Commodity prices from oil to copper to lumber have surged. Higher lumber prices are adding $36,000 to the price of a new home.

Author(s): Editorial Board

Publication Date: 10 June 2021

Publication Site: WSJ

Return of the IRS Scandal

Mary Pat Campbell

Link: https://www.wsj.com/amp/articles/return-of-the-irs-scandal-11623191964

Excerpt:

 Less than half a year into the Biden Presidency, the Internal Revenue Service is already at the center of an abuse-of-power scandal. That news broke Tuesday when ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans.

Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from “an anonymous source” and doesn’t know who provided them, how they were obtained, or what the source’s motives are.

Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their “fair share.” The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade.

….

This still leaves the real scandal, which is that someone leaked confidential IRS information about individuals to serve a political agenda. This is the same tax agency that pursued a vendetta against conservative nonprofit groups during the Obama Administration. Remember Lois Lerner?

This is also the same IRS that Democrats now want to infuse with $80 billion more to chase a fanciful amount of uncollected taxes. As part of this effort, Mr. Biden wants the IRS to collect “gross inflows and outflows on all business and personal accounts from financial institutions.” Why? So the information can be leaked to ProPublica?

Author(s): Editorial board of WSJ

Publication Date: 8 June 2021

Publication Site: Wall Street Journal