Lawyers, Guns and Money
Comment of the Day

June 29 2022

Commentary by Eoin Treacy

Lawyers, Guns and Money

Thanks to a subscriber for this edition of Grant’s Almost Daily. Here is a section:

The prospect of a bruising stretch for the pension industry at large colors the migration into the deeper end of the risk swimming pool. An analysis from Moody’s Investors Service last Wednesday projects a systemwide 12.2% loss over the 12 months through June 30, far below the assumed 6.8% return target. That shortfall would leave assets sufficient to cover 6.9 years of retirement benefits, down from 8.3 years in mid-2021 and the lowest figure since at least 2016.

Moreover, the ratings agency noted that “a persistent environment of high inflation would likely drive up wages for active employees and cost-of-living adjustments for retirees, increasing future pension obligations and governments' budget outlays.” State-directed efforts to contain raging price pressures may prove less-than-effective, as California Governor Gavin Newsom announced plans to distribute $1,050 direct stimulus checks to 23 million local residents “who are grappling with global inflation and rising prices of everything from gas to groceries,” his office declared.

Nothing a bit more leverage and alternative assets can’t fix.

Eoin Treacy's view

The success of the FANGMANT shares is well understood. They benefitted from their all-in bets on 4G connectivity, and their market cap appreciation was amplified by the ballooning interest in ETF investing which concentrated flows in the largest names.

It is much harder to monitor the size of the private markets because they are unlisted by definition. The one thing we can be sure of is private markets have exploded in size since 2008. Their performance has been amplified by the exceptionally low interest environment.

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