Commodities Kiss of Death? Is The Reflation Trade Over?
by ilene - February 5th, 2010 11:29 am
Commodities Kiss of Death? Is The Reflation Trade Over?
Courtesy of Mish
Last week the LA Times reported the California teachers pension fund is $43 billion short.
Another pension alarm bell is ringing in Sacramento, this time at the teachers retirement system, where the nation’s second-largest public pension fund is reporting a $43-billion shortfall.
The California State Teachers’ Retirement System said that as of June 30, 2009, it could meet only an estimated 77% of its future pension obligations — far less than the 100% recommended by actuaries.
Known as CalSTRS, the fund took a big hit during the 2008-09 fiscal year, losing a quarter of its value. Since then, its investment returns have improved, but the growth isn’t strong enough to keep up with a widening funding gap.
What’s worse, CalSTRS Chief Executive Jack Ehnes said in a report to be presented to the board Feb. 5, the fund could be broke in 35 years — the length of a typical teaching career.
To avoid that calamity, Ehnes wants the state Legislature to raise employer pension contributions paid by the state and, indirectly, California’s 1,043 school districts in the next few years.
Rolling The Dice With Commodities
Given there is virtually no chance the legislature will pony up $43 billion, CalSTRS considers rolling the dice on commodities. Hell why not? Taxpayers are on the hook if it does not work out.
Please consider California Teachers’ Pension Fund Mulls Commodity Investment.
The California State Teachers’ Retirement System, the second-biggest U.S. public pension, is considering investments in commodities to boost returns and provide a hedge against inflation and slumping equities.
The governing board of the fund, with $134 billion under management, is scheduled to hear today a staff report in Sacramento that recommends its first-ever commodity investment. The board will decide whether to seek additional research on strategies and portfolio weightings.
“Commodities historically exhibited low correlation to equities and bonds and produced double-digit returns when equities fell,” Innovation and Risk Director Steven Tong and Investment Officer Carrie Lo said in a report to the board. “In effect, commodities may act as an insurance policy, realizing low single-digit returns over the long run but generating large double-digit payoffs in the event of a negative shock.”
Commodity prices have surged since 2001 as global economic growth led by China, the fastest-growing consumer of raw materials, spurred demand for metals,
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.