The San Diego daily newspaper reported today that their fine city had the highest budgeted cost per firefighter in America at $210,648 per man annually. This number includes pay and benefits but does not take into account unfunded pension liabilities which are now projected to be huge and growing.
Police and Firemen are eligible to retire after just 20 years regardless of age. In many states they qualify for pensions based on (2.5% times the average of their highest 3-years of earnings including overtime). That means that in San Diego someone who started at age 20 could retire at age 40 with 50% pay for the rest of their life. With many men now living well into their 80’s and 90’s the stream of pension checks could easily extend for 45 years after a 20-year retiree left active service to the community.
If the actual salary averaged $125,000 over the final three years pre-retirement (very conservative for big cities today) these 40 year olds would collect $62,500 (plus any future cost of living adjustments) per year. If that 40 year old lives to 85 he will have received $2,812,500 before any COLA adjustments.
If this same fireman had continued to work for 30 years to age 50 his pension would likely have been about $112,500 per year or a cumulative $3,937,500 by age 85.
It is any wonder our states and cities are all nearly bankrupt?
President Obama just finished speaking about the economy. He said nothing other than the usual political blaming of the opposition party for keeping him from getting America working again. Here are the charts of four major areas of the economy as of mid-August…
Durable goods orders have leveled off after a partial rebound from the 2009 lows.
Initial unemployment claims are rising again.
New home sales have continued their multi-year sales trend decline.
Existing home sales have plummeted in the wake of the two absurd homebuyer home credits that were set to expire in November and actually ended a few months later.
Virtually every policy Obama has implemented has failed to accomplish his goal of creating jobs. The enormous expenditures, however, will depress the economy for years to come.
I continue to own stocks as one of the few asset classes that could survive the inevitable collapse in the foreign exchange value of the $US. Bank deposits and dollar denominated debt are likely to lose buying power dramatically when the rest of the world refuses to roll over their $13 trillion plus in US government paper.
These are some powerful quotes to see back to back.
What you think about them will depend on which side of the fence you live on.
Ironically, unsophisticated public buyers who are terrified to own equities, have been throwing billions of dollars into Junk Bond funds without knowing that these same bonds will behave almost exactly like the shares of the companies that have issued the paper.
Bespoke Investment Group checked out the performance of the S&P 500 for the one, three, six and twelve month periods following the fourteen 10% or greater bond market rallies (over four month periods) since 1977.
Many people believe that fixed income rallies portend poor future economic performance and thus tend to avoid equities when bonds have done exceptionally well.
Bespoke’s data seems to debunk that sentiment. They found that more than 75% of the back-tested periods showed stock market rallies rather than the expected declines.
Vito Racanelli, writing in Barrons, noted that investors have fled the equity markets over the past three years and moved their money into bonds. These investors have little stock exposure left to sell. He then noted that any weakening of the bond market will lead these same fickle souls to start redeeming their fixed income holdings which could fuel a big stock market rally.
This could well be another great contrary indicator.
If the opposite of love is not hate- but indifference, then the public truly hates stocks right now. Historically that’s been a great climate for buying for potentially huge gains.