While New York’s pension funds continue to assume that they will achieve an 8.0% rate of return from peak values, there is realism elsewhere. The Federal Reserve Bank of San Francisco has released a paper that predicts two more decades of weak stock market returns as the relatively large Baby Boom generation cashes in its retirement savings — leaving the smaller generations coming after as buyers. The paper doesn’t even consider the relative wealth of different generations, with the second half of the Baby Boom worse off on average than the first half, Gen X worse off than the second half of the Baby Boom, etc. And one of the ways those born after 1956 are worse off than those coming before is they are less likely to have pensions, or increasingly even employer contributions to their 401Ks. Therefore, they will have less money to invest in stocks – unless the Republicans can force them to use their Social Security money to buy stocks from older generations at inflated prices. (Government policy is already to try to get young adults to impoverish themselves buy buying houses at inflated prices relative to their smaller incomes).
Meanwhile, the Federal Reserve Board in Washington has voted to keep short term interest rates are zero for two additional years. But according to today’s Wall Street Journal, that zero return on cash looks pretty good to most investment professionals when deciding what to do with their own money, even as they urge their customers to invest in riskier assets for the long run. And you can’t really choose not to, because the politicians overseeing public employee pension funds are doing it for you, and will come after you and your children for any losses even as any temporary gains are cashed in with retroactive pension enhancements described as costing nothing. The Wall Streeters, according to the article, have shifted to cash, and are scared with their own savings.