Thursday, November 27, 2008

Bill Tufts, Pensions and Political Turkey

Tonight I have a treat for you. Bill Tufts of WB Benefit Solutions has graciously provided me with a commentary to share with you on my blog.

Before I get to Bill's commentary, I want to cover a few things. Today is Thanksgiving in the U.S. so the stock markets were closed in New York. The Canadian stock market was open and the S&P/TSX pushed higher for a fifth straight session:
The Toronto stock market finished higher for a fifth session Thursday as investors continued to flock to beaten-down commodity stocks, particularly those in the base metals sector.

"There seems to be some growing expectations that metal prices are going to continue to retrace some of the lost ground that they've seen and (they're) trying to climb their way back up again," said Fred Ketchen, manager of equity trading at Scotia Capital.

Investors have taken in news in the past week of lower interest rates and a stimulus program in China, raising hopes that demand for metals will pick up.

The S&P/TSX composite index was 110.25 points higher to 8,753.77 with the main index racking up just over one thousand points since last Thursday. The TSX Venture Exchange moved up 16.59 points to 748.23.

The Canadian dollar closed down 0.06 cent to 81.23 cents U.S.

American markets were closed for the U.S. Thanksgiving holiday.

China did slash its key rate yesterday because of growing concern about the global economic slowdown:

The impact of the global financial crisis on China's economy is deepening and a large interest rate cut announced Wednesday is essential to boosting slowing growth, the country's top planner said.

"This crisis is spreading all over the world and its impact on China's economy is deepening," Zhang Ping, chairman of the Cabinet's National Development and Reform Commission, said at a news conference Thursday. Zhang said economic indicators for November were showing an "even faster decline," though he gave no details.

A 1.08 percentage point reduction in the country's key one-year lending rate announced late Wednesday -- China's biggest rate cut since 1997 and the fourth in three months -- is "one of the essential measures to stimulate our economic growth," Zhang said.

Zhang said a 4 trillion yuan ($586 billion), two-year government stimulus package announced Nov. 9 should add about 1 percentage point to China's economic growth rate. That was below the 2 percentage point increase that independent analysts have forecast.

China's economic growth is expected to fall to about 9 percent this year, down from last year's rapid 11.9 percent rate. That would be the fastest of any major economy, but Chinese leaders worry about rising job losses, especially in export industries, and possible unrest.

Growing unrest in China will cause chaos in that country. Yesterday we saw how terrorists are threatening the social and economic fabric of India, another upcoming global powerhouse.

One by one, the BRICS are falling and let's hope that these aggressive measures will help stimulate growth. Unfortunately, I am not sure that they will do much to offset the decline in global demand.

As far as pension news, the media in Canada keeps focusing on Ontario Teachers' Bell Canada deal and on the Caisse where losses have become a major campaign issue for Liberal Leader Jean Charest.

Premier Charest is absolutely right not to politicize the Caisse. I hope he read my comment on "Quebec Inc." and will not allow opposition leaders to engage in that debate.

Again, where were these politicians when the Caisse needed governance reforms? They were all sleeping on the wheel, each and every one of them. As long as the Caisse was delivering results that beat their benchmark, they weren't the slightest concerned. Now that the Caisse will suffer huge losses just like the rest of its peers, they seize the opportunity to scream foul play to score political points.

But a pension fund shouldn't be a political football. I will repeat what I have stated many times in my blog: Richard Guay is the best person to lead the Caisse at this critical juncture and turn it around. Some may disagree with me and that is their right, but I stick with my claim and I will back him up knowing full well that just like Senator Obama, he inherited a mess which he now has to clean up.

Let's move on to Bill Tufts' commentary:


It has been a while since I wrote to you. I have been busy trying to calm my clients about their fears of the markets and most businesses seems to be tightening down expenses for the potential challenges in the economy ahead.

A lot has happened in the pension world.

We can begin with the meltdown that has occurred in pensions on the markets. This has heightened awareness of pension problems for the public sector plans and of course in the private sector as well. The automotive makers are saddled with huge legacy costs and it will be difficult to see how they can survive without government help. But some argue the markets should take their natural course and weed out the non-profitable entities. Why should you as a taxpayer bailout inefficient businesses who have mismanaged opportunities.

Speaking of bailouts there us much talk of bailouts for pensions funds. Unfortunately the only funds to be bailed are the public sector plans and the few large company plans remaining. We can see how the automakers are struggling. Here is a list of the Top Pension Plans in the country. They look like plans that have already received billions of tax dollars. Why dump more in? Who is going to bail out your pension fund?

As we watch the business world try and deal with pension meltdowns more and more people are speaking about the unfairness of our current system. The Pension Tsunami
is a watchdog across the US. As people investigate pensions more and more rot is discovered. This site discloses the waste of taxpayer dollars to the new special class of citizens the taxpayer has created.

The sins include double dipping, receiving a gold-plated pension at that same time working on the public dole. Pension boosting, the boosting of final pension income by working overtime. Bankrupted cities in California, almost bankrupted states, huge pension deficits and on and on. Ontario’s own Teachers pension shortfall was over $12 billion in April this year. That was before the huge losses in the markets this fall. The deficit is probably in the range of $30 billion today. This is more than $6000 for every Ontario resident.

On the research front the CD Howe Institute released their report that shows the huge unfairness of the public sector pension plans. The gold-plated pensions of the public sector are designed to replace 70% of final working income. A teacher retiring at $94,000 of income should expect government support of over $65,000 for life and indexed.

The CD Howe report compared the private sector and the public sector worker. A comparison was made between two workers each earning $50,000. The average private sector worker retires with $ 255,000 in his RRSP while the same public sector worker would have in excess of $1 million to fund his pension. The full report makes for very interesting reading for us who have absolutely nothing better to do!

To address the unfairness of the pension situation even the Canadian Chamber is on board with a report that makes the #1 Pillar in its Key Areas of Focus, Reforming Pension and Benefit Regimes. The report provides an excellent analysis of the key areas that Canada needs to improve to become competitive, from a labour perspective. This will be more important than ever for the future of Canada as we watch the continuing decline of the manufacturing sector and the rise of new economies based on technology, innovation and services.

It will be very interesting to watch how this pension situation progresses.

For those of you interested in a more technical aspect of pensions Leo has an interesting site with lots of information The Pension Pulse. [thanks for the plug!]

Oh by the way, I am planning on going to Mexico early next year to help a friend who has a chain of hearing clinics. Every year he goes to fit hearing aids on children in Mexico. It is a life changing experience for them. It is a vicious cycle because there is no social security system in Mexico. If the kids can’t hear they cannot learn to read, write or speak. Without these skills they cannot go to school. Without schooling in Mexico there is not much hope.

Last year we were in Tabasco, yes where the hot sauce is from. Over 50% of the population of Tabasco lives in poverty. Not like Canada’s poverty but real poverty where it is measured by having shoes to go to school, a roof over your head and one meal a day. We were able to help over 50 children hear, some for the first time. It is quite an experience to hear a child hear his name for the first time in their life and know that just maybe life can be different.

Hasta muy pronto.

I like the way Bill's message ended, focusing on the important things in life. Too many people in the financial world have lost the meaning of life.

As I told my former colleague on the plane ride coming back from Toronto a couple of days ago: "The only thing that matters in life is your family, your friends, your community and your health. The rest is bullshit".

And the true heroes in this world aren't the business billionaires, hedge fund or private equity titans you read about in the financial media, but ordinary people doing extraordinary things.

Tonight I spent a couple of hours watching CNN Heroes. If you want to understand the true meaning of Thanksgiving, go read up on these amazing individuals who selflessly devote their time and energy to make this world a better place.

Try and think about the billions of people out there are much, much worse off than most of us, and try to focus on doing your part to make this a better world.

Finally, you will notice that I removed my Google ads on the bottom right hand side and replaced them with links to worthy charities. If you know of any worthy charities that I should add to my list, please feel free to forward me the links.

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