The Zeal for Yield is Full On for State Pensions...The Bust will End in a Trail of Tears of Pension Haircuts and Taxpayer Bailouts.

Pension funds more risky with your money: Pro

CapRidge Partners' founder Steve LeBlanc said pension funds have been moving away from a 60-40 allocation between stocks and bonds. As underfunded pensions chase better returns to meet their obligations, managers have moved money from stocks to private equity and from fixed income into real estate, he said. 

Pension funds are also moving into high yield bonds and emerging market debt, LeBlanc told CNBC. If they don't add more risk, they'll never be able to meet the 8 percent returns needed for actuarial costs, LeBlanc said. 

"We're not going to be able to honor all the commitments we have made with all the teachers and firemen and policemen unless we get higher rates of return," Rubenstein said. "If we were to tax people more we wouldn't have to do this. But we don't want to tax people to pay for these benefits."

DYI Comments:  Classic promises made by the industry shills.  Very easy to promise a 8% return when it's OPM (other people's money).  Currently we are in a long term low return environment attempting to achieve returns significantly higher will end in a trail of tears.

Pension plans by their very nature are conservatively financed under takings and should not be used for speculations.  What has happened the beneficiaries (workers) have been over promised pension benefits for years and in some cases decades.  The politicians have abandoned any shred of fiduciary responsibility by swinging for the fences to avoid pension haircuts or tax increases, kicking the can down the road long enough for him or her to be out of office.  Organization such as the one above is tapping into this panic to generate business.

Here is what they are up against.

Video: Shiller's PE10 portends low returns. 

 

Grantham Predicts A Bust ‘Unlike Any Other’

Grantham’s prediction is that assets, which he sees as generally expensive right now, will fall in value over the next seven years until they are cheap once again. Since we’ve never been in this situation before, Grantham is relying partially on anecdotal evidence to frame his argument (as he acknowledges), but for someone who correctly called the last two stock market drops, to predict a third should at least get people’s attention.

The coming bust in US stocks

There are several other signs of froth which could warn of an impending collapse. Data from the New York Stock Exchange (NYSE) shows margin debt (adjusted for inflation) to be at an all-time high—matching the S&P500’s trend of breaking multiple previous highs. Initial public offerings (IPOs) have been the greatest beneficiaries of this flush of liquidity, particularly companies with negative earnings which make up 74% of all IPOs. All the while corporate insiders have been net sellers of equities—being the most bearish in the last quarter of a century.

 

Estimated 10yr return on Stocks

Using 5.4% as the historical growth rate of dividends and 4.0% as the ending yield.

Starting Yield*---------return**
1.0%-----------------------(-5.7%)
1.5%-----------------------(-1.7%)

 
2.0%----------1.3% You are Here!

2.5%------------------------3.8%

3.0%------------------------5.9%
3.5%------------------------7.8%
4.0%------------------------9.4%
4.5%-----------------------10.9%

5.0%-----------------------12.3%
5.5%-----------------------13.6%
6.0%-----------------------14.8%
6.5%-----------------------15.9%

7.0%-----------------------17.0%
7.5%-----------------------18.0%
8.0%-----------------------19.0%

*Starting dividend yield of the S&P500-**10yr estimated average annual rate of return.

DYI