Monday, August 14, 2006

fleckenstein zu csco + pension crunch

noch ne baustelle in sachen usa die bisher wenig beachtung findet. fairerweise muß man sagen das die lage hier in deutschalnd im zusammenhang mit z.b. den beamtenpensionen für die keinerlei rückstellungen/vorsorge bisher gebildet worden sind wahrscheinlich sogar noch schlimmer ist.

The next big pension crunch

Many cities, counties and states have underfunded pension plans for years, betting the stock market would bail them out. With the economy softening, the bill is coming due.

Initially last Wednesday, Cisco Systems (CSCO, news, msgs) CEO John Chambers was able to convince folks that his company's results were wonderful -- and "specific" to the entire galaxy (or at least all tech stocks). What results precipitated that, you might ask? In essence, Cisco was able to win at beat-the-number for this quarter, and next year's guidance was basically as had been expected (though the acquisition of Scientific-Atlanta caused its revenues to be projected slightly higher for 2007 than had been previously thought).

Of course, dead fish being what they are, nobody asked: If everything is so wonderful, how come in the last year -- when revenues rose $1.4 billion -- receivables rose $1.1 billion? (Stated differently, revenues were up 21% year-over-year, but receivables were up 50%.) Sequentially, receivables grew only 10.7%, versus a 9% increase in revenues. Thus, making the number is a joke when laid against those receivables. Nevertheless, the bulls' verdict was: Buy everything in tech (though the vote turned by day's end).

Neither a borrower nor a lender be Meanwhile on Wednesday, the financing mechanism of the housing ATM food chain saw some holes blown in it. Specifically, Accredited Home Lenders (LEND, news, msgs) was down over 20% on a poor quarter. Accredited Home (like New Century Financial (NEW, news, msgs) a week earlier) was forced to keep the loans that it was unable to sell. immobilienblasen: subprime in real trouble

No prisoners were taken last Wednesday -- witness the pummeling not just of Accredited Home but also New Century and Countrywide Financial (CFC, news, msgs). (CFC's monthly comps were horrific.) Adding to the angst: Toll Brothers (TOL, news, msgs) and WCI Communities (WCI, news, msgs) -- "building" blocks in the housing ATM itself -- reported poor results that day, which saw the homebuilders under pressure. Ditto all those members of the financial-dark-matter group that I mentioned in last week's Contrarian.

Indeed, the early stock-market action on Wednesday was quite a dichotomy to behold. Chambers, one of the biggest cheerleaders from the tech bubble, was able to excite the tech tape, at least initially, amidst the damage to the housing-ATM structure that's powered our economy through and past the original bubble's aftermath.

Pension poaching

Lest anyone think that this original stock-bubble aftermath is behind us, the surfacing of municipal pension problems tells another story. Which brings me to "Pension Plans Face Billions in Shortages," a story in the Aug. 8 edition of The New York Times (registration required). It starts with the debacle in San Diego, whose shortchanging of worker pension funds was revealed thanks to the efforts of a whistleblower. These actions by the city have not exactly been a secret. It's just that no one cared for quite a while.

Besides illuminating similar problems in lots of places, the Times story points out what can go wrong when something as seemingly innocent and obscure as pension accounting wreaks havoc with its financing: "San Diego remains barred from raising money by selling bonds. Cut off from a vital source of cash, it has fallen behind on its maintenance of streets, storm drains and public buildings. Potholes are proliferating and beaches are closed because of sewage spills."

Remember, folks, this is happening while times are good. Times are about to get worse.

According to calculations by Barclays Global Investments (cited in the story), if all of America's state pension plans had used the same accounting conventions that corporations do, the total benefits promised -- $2.5 trillion -- would only be backed by assets of $1.7 trillion, leaving a shortfall of $800 billion. Let me remind you again: That's while times have been good and the stock market is where it is. A decline in the stock market will only widen that gap, as the assets in these plans are a function of high stock prices.

Also, recall that many states borrowed money during the bust, gambling that they could bail themselves out by putting the proceeds into the stock market. While that has appeared to work temporarily, it won't work down the road.

Ploys by the Jersey (and Illinois) boys

Continuing on, the story says that some of the tricks used by San Diego are also turning up in such other places as Trenton, N.J. The neat little gambit there (made possible by using certain accounting conventions): Officials have been granting pension increases even as they've been cutting back on contributions.

Illinois has done the same, trying to "make its municipal pension plan (funding costs) cheaper by stretching its funding schedule over 40 years -- considerably longer than the 30 years that governmental accounting and actuarial standards permit, and more than five times what companies will get under a pension bill that has just passed Congress." (im vergleich zu deutschland immer noch besser)

Why did they stretch the funding schedule out? To make it look as though the plan is in better shape than it actually is -- while contributing less to it.

The article points out one reason why all of this has been allowed to occur: There is no oversight. And, in a somewhat eerie development, though it fits with other generic abdications of responsibility, Arthur Levitt, the former chairman of the Securities and Exchange Commission, discusses the fact that the Office of Municipal Securities, an independent structure within the SEC that reported directly to the SEC chairman, was dismantled once Levitt left the commission.

Why that occurred, I have no idea. But, as I said earlier, it's just another case of dangerous behavior occurring more or less in broad daylight, with no one being concerned and the authorities not bothering to pay any attention. As the upcoming recession unfolds, we will likely find out that such is the case in many more cities (and states) than the handful that have been mentioned.

wenn man diese summen auf sich wirken läßt und den studien der us regierung glauben datf das bis zum jahr 2050 die verpflichtungen resultierend aus medicare, social security usw auf bis zu 51 trillionen $ ansteigen fragt man sich wer 30 jahresbonds zu knapp über 5% kauft und warum einige staaten (u.a. auch deutschland immer noch ein AAA rating genießen.) zumal in dieser zahl meiner meing nach nicht einmal die verbindlichkeiten der einzelnen staaten innerhalb der usa enthalten sind.(selbst wenn würde das an meiner meinung auch nichts ändern).



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