You Won’t Believe WHEN Pension Funds “Embraced Stocks as a Safe Investment”
A “double down” strategy goes horribly wrong
by Bob Stokes
Updated: March 18, 2020
Pension funds were already in a highly precarious position before the DJIA's February 12 high and the subsequent start of the high drama in stock moves.
The 2018 edition of Robert Prechter's Conquer the Crash noted:
The bull market in stocks has gone on so long that pension funds, formerly boasting conservative portfolios, have embraced stocks as a safe investment.... This is a setup for disaster.
Fast forward to Nov. 5, 2019 when the Wall Street Journal said:
Public Pension Plans Continue to Shift Into U.S. Stocks
Discussing the same theme, our January 2020 Global Market Perspective showed this chart and said:
At the end of the third quarter, alternative investments such as private equity and who-knows-what made up 5.6% of [U.S.] public pension fund portfolios, a new record. At 47.3% in 2019, equities exceed the allocation at the stock market peak of 2007. "... As in 2008, pension funds are doubling down. Once again, the strategy will prove a miserable failure.
Yes, deficit-plagued pension funds were nearly half invested in stocks -- just when the main indexes started to plunge a few weeks ago.
On March 9, the Guardian, a British newspaper, put a positive spin on pensions and the market's rapid downturn:
How badly has my pension been hit?
It's bad, but not as grim as the headline falls in the FTSE or Dow suggest. As a rule of thumb, for every 10% fall in the FTSE, the value of your pension investments falls by about 5% to 6%.
Well, whether one chooses to call it "bad" or "grim," one thing's for sure: the British and U.S. stock markets have fallen even more since that article published.
Yes, the troubled pension plans story is a global one -- and, as you know, so is the dramatic downturn in equities.
Learn what our global analysts expect next for major global stock markets in our comprehensive Global Market Perspective.
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Global Equities: Is the Bottom Even in Sight?
No bull market goes on forever, even ones that seem to have no end.
Likewise, every downturn – even the severest of bear markets – has an ultimate bottom.
Our global Elliott wave experts anticipated the end of the uptrend that began in March 2009.
Indeed, our February 7 Global Market Perspective said:
The Great Bull Market has become so entrenched that pundits use words such as raging and relentless to describe it (CNBC, January 18). … With a late January swoon, however, the Dow Jones Industrial Average began the year with a down month. It is a small hint at what we view as strong potential for a bearish surprise in 2020. The extremity of bullish conviction on display … pairs well with the wave count, which places U.S. stocks near the end of the advance.
The Dow Industrials topped just five days later!
Now our global analysts are discussing what’s next for this swift and violent financial downturn.
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