Thursday, May 20, 2010

Well that was interesting...

The market never caught a bounce today and the carnage is continuing to ripple through Asia again tonight. Tomorrow could be eventful with meaningful votes in Europe and talk of more interventions to stem the decline in the markets.

I've seen a couple of news items recently highlighting the disconnect between falling oil prices and gas prices which have held steady around $3/gallon. Remember, there is about a 1 month lag between the price of oil on the spot market and any changes in prices at the pump. Oil is falling right now because of a strengthening of the US dollar which is rebounding because of the global panic going on right now. If this holds, we could see a 10-15% drop in retail gas prices in another month or so, but I'm concerned about the impact of the Deep Water spill could have on our domestic supplies. Right now we get about 13% of our oil or 1.2 million barrels per day from a port located off the Louisiana coast (it's located offshore to allow larger ships to offload their cargo). If the BP spill affects this area of the Gulf we could see imports slow dramatically at this port which could force prices up at the pump even if the price of a barrel of oil continues to fall.

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I've mentioned before the coming pain to the pension system in the US but this is first mainstream review of the NY pension system I've seen in probably over a year...

"In Yonkers, more than 100 retired police officers and firefighters are collecting pensions greater than their pay when they were working. One of the youngest, Hugo Tassone, retired at 44 with a base pay of about $74,000 a year. His pension is now $101,333 a year. "

"Roughly one of every 250 retired public workers in New York is collecting a six-figure pension, and that group is expected to grow rapidly in coming years, based on the number of highly paid people in the pipeline.

Some will receive the big pensions for decades. Thirteen New York City police officers recently retired at age 40 with pensions above $100,000 a year; nine did so in their 30s. "

The biggest problem is not early retirement - although minimum retirement age should be increased to 55 in my opinion - but rather unrealistic pension investment expectations. Our pensions assume 8% returns indefinitely in markets that seem to be going sideways for the foreseeable future. I'm sure that will end well.

Cheers.

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