Wednesday, January 20, 2010

Pension math, suburban poverty and yachts!

I've been saying for some time that pensions are going to be huge issue for voters and beneficiaries over the next decade. The fundamental flaw in the pension system is that we have allowed pensions to you fantasy math to provide benefit projections to their pension beneficiaries to keep everyone calm. While equities returned basically 0% over the last decade - before inflation - we continue to allow pension plans to "forecast" 8% annualized returns forever. Every year that you don't hit those targets you fall into a deeper hole.

Note this gap for a single city - San Diego.

Note how the gap between pension obligations and pension assets has grown over the past decade. Now imagine this playing out in every major city, county, state across the country. While you'll hear many complaints about Gov. Paterson's budget cuts understand that this is a time for shared pain and if any thing his cuts should be deeper. Such is the price of living in a state like NY.

For all of the talk about troubles on the coasts I was really struck by this chart from the St. Louis Dispatch showing that poverty rates have grown in suburban areas over the past decade.

"In other words, as low-wage retail and warehouse jobs have moved further into suburban areas, so have people who work them. But those jobs often don't pay well enough to support higher-priced homes in those areas, forcing a long commute or a hefty rent check, Koenen said.

"We closed the Chrysler plant and we're opening more retail stores," Koenen said. "And you just can't take care of a family on $8 or $9 an hour."

A little good news for Wisconsin - Jacobs intends to quickly ramp up yacht production.

The former CEO of Genmar - a major boat manufacturer that went into bankruptcy last year - snapped up the yacht building business of Genmar for pocket change - just over $6 million. Given that the average price of some of the large yachts made by this division can be in the seven figures this seems like a decent deal.

"About 30 to 40 people kept the manufacturing facility going during Genmar's bankruptcy, but now Jacobs said that employment "should move up to 200 very quickly."

Now the skeptic in my would love to point out that "In the 18 months preceding Genmar's Chapter 11 bankruptcy filing in June 2009, Jacobs' Genmar businesses eliminated the jobs of about 3,000 of its 4,500 workers", but who am I to rain on this parade.


1 comment:

JeffreyShockley said...

Pick the week and book a yacht or cabin. Sail and follow the sun to Croatia, Greece, Italy or Turkey. Escape winter to BVI or Thailand. Let's do this thing.