Monday, June 14, 2010

To double dip or not to double dip...

The Greeks took the wind out of the market's sails late in the day as Moody's cut their debt to junk status. This has been coming for some time but for some reason it seemed to catch the market off-guard.

There was an interesting bit of technical research that made the rounds this morning that indicated that it's safe to enter the waters of the equity markets again. The thinking is that the market has made a bottom at this point and we'll be good to go until the fall (when this same analyst said head for the hills because it could get really, really ugly). Many people also pointed to a piece of research that suggests the odds of a double dip recession are virtually zero. I think their analysis is based on historical norms and if this recession has taught us anything it's that history doesn't always repeat. Without another round of substantial stimulus I think we're looking at about a 30-40% chance of a double dip. I don't think there is any chance the politicians will authorize another round of stimulus in an election season so the odds of a recession may go up as the year goes along.

FYI - The Federal Government is about to get hit with overdraft fees if they aren't careful. On Friday our actual cash was down to about $4 billion. It shouldn't be news that we're spending more as a nation than the gov't is taking in, but the thing that really concerns those in the know is the reliance on ultra short-term financing. Basically, we've bought a $2.8 million McMansion and rather than financing it with a 30 yr fixed rate mortgage we're using daily loans from the bank. This works great until the day that it doesn't work. So far in the first 10 days of June we rolled over $320 billion in debt. So far, so good...

Wow, Illinois seems to be rolling the dice in their teacher's retirement fund.

"Dale Rosenthal, a former strategist for Long Term Capital Management, the hedge fund known for its epic collapse in 1998, and a proprietary trader for Morgan Stanley, has seen his share of financial complexities.

But when shown a seven-page list of derivatives positions held by the Illinois Teachers Retirement System as of March 31, obtained by Medill News Service through a Freedom of Information Act request, the University of Illinois-Chicago assistant professor of finance expressed disbelief.

“If you were to have faxed me this balance sheet and asked me to guess who it belonged to, I would have guessed, Citadel, Magnetar or even a proprietary trading desk at a bank,” Rosenthal said.

The fact that the sheet doesn’t belong to one of those high-flying hedge funds, but to the $33.72 billion pension fund that serves more than 355,000 full-time, part-time and substitute public school teachers and administrators working outside the city of Chicago, is perplexing to those interviewed for this story.

How bad is it? After losing $4.4 billion on investments in fiscal year 2009, and 5 percent on investments in fiscal 2008, the teachers’ pension is now underfunded by $44.5 billion, or 60.9 percent, according to the Commission on Government Forecasting and Accountability’s March 2010 report. By comparison, only 20.3 percent of the Chicago Teachers’ Pension Fund is unfunded.

Still, TRS has the fourth-riskiest investment portfolio for a pension fund in the U.S., with fully 81.5 percent of its investments considered risky, according to a Pensions & Investments study based on 2008 data.(The Commonwealth of Pennsylvania State Employees’ Retirement System was considered the riskiest with 86.1 percent of its investments considered risky.)"

On a separate, but possibly related note, the NYS Teacher's Retirement System used to publish their holdings online annually and every quarter. However, I can't seem to find the listing of holdings (other than the top 10 holdings) on their website. If anyone knows where they might have moved this info on their website, let me know.


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