Comments on: No time to worry about CalPERS http://blogs.reuters.com/felix-salmon/2010/04/12/no-time-to-worry-about-calpers/ A slice of lime in the soda Wed, 22 May 2013 01:01:25 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: TFF http://blogs.reuters.com/felix-salmon/2010/04/12/no-time-to-worry-about-calpers/comment-page-1/#comment-13388 TFF Mon, 12 Apr 2010 18:21:58 +0000 http://blogs.reuters.com/felix-salmon/?p=3347#comment-13388 How does that disclaimer go? "Past performance is not indicative of future results." Time after time, we've seen analysis that PROVES an investment in XYZ is vastly superior to conventional wisdom (over the past 25 years). That's usually a sign that XYZ is trading in bubble territory. I wonder, what was the average return on stocks from 1975 to 2000? What was the average return on real estate from 1980 to 2005? How long until the bond market collapses 30%? How does that disclaimer go? “Past performance is not indicative of future results.” Time after time, we’ve seen analysis that PROVES an investment in XYZ is vastly superior to conventional wisdom (over the past 25 years). That’s usually a sign that XYZ is trading in bubble territory.

I wonder, what was the average return on stocks from 1975 to 2000? What was the average return on real estate from 1980 to 2005?

How long until the bond market collapses 30%?

]]> By: Beer_numbers http://blogs.reuters.com/felix-salmon/2010/04/12/no-time-to-worry-about-calpers/comment-page-1/#comment-13385 Beer_numbers Mon, 12 Apr 2010 16:34:21 +0000 http://blogs.reuters.com/felix-salmon/?p=3347#comment-13385 "On top of that, the Stanford types seem to think that it makes sense to use a risk-free discount rate to calculate pension-plan liabilities, while even they admit that the assets shouldn’t be invested in a risk-free manner." Why shouldn't they use a risk-free discount rate to discount liabilities? Don't confuse assets (which are in present value terms and may grow at greater than the risk-free rate) and liabilities (which are known in future dollar terms, but are certain to be incurred). Absent legislative or judicial action (and I'm not sure what kind of hoops they'd have to jump through to change existing liabilities) they *will be* making the payments in the future, and discounting them at anything but the risk-free rate would understate the obligation. “On top of that, the Stanford types seem to think that it makes sense to use a risk-free discount rate to calculate pension-plan liabilities, while even they admit that the assets shouldn’t be invested in a risk-free manner.”

Why shouldn’t they use a risk-free discount rate to discount liabilities? Don’t confuse assets (which are in present value terms and may grow at greater than the risk-free rate) and liabilities (which are known in future dollar terms, but are certain to be incurred). Absent legislative or judicial action (and I’m not sure what kind of hoops they’d have to jump through to change existing liabilities) they *will be* making the payments in the future, and discounting them at anything but the risk-free rate would understate the obligation.

]]> By: VincentMI http://blogs.reuters.com/felix-salmon/2010/04/12/no-time-to-worry-about-calpers/comment-page-1/#comment-13384 VincentMI Mon, 12 Apr 2010 16:05:24 +0000 http://blogs.reuters.com/felix-salmon/?p=3347#comment-13384 Overreact much? The "Stanford wonks/types" you talk about are students, probably just out of undergrad, who have written this paper as partial requirement for their Master's degrees in public policy. It's not like it had any chance of being taken seriously by the Governor's office anyway. Best, Vincent Overreact much?

The “Stanford wonks/types” you talk about are students, probably just out of undergrad, who have written this paper as partial requirement for their Master’s degrees in public policy. It’s not like it had any chance of being taken seriously by the Governor’s office anyway.

Best,

Vincent

]]> By: RyanM http://blogs.reuters.com/felix-salmon/2010/04/12/no-time-to-worry-about-calpers/comment-page-1/#comment-13383 RyanM Mon, 12 Apr 2010 15:45:14 +0000 http://blogs.reuters.com/felix-salmon/?p=3347#comment-13383 Your right Felix, we shouldn't worry about CalPERS. A pension plan underfunded by $500 billion never hurt anyone. Your right Felix, we shouldn’t worry about CalPERS. A pension plan underfunded by $500 billion never hurt anyone.

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