"The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States.
Puerto Rico’s move could roil financial markets already dealing with the turmoil of the renewed debt crisis in Greece. It also raises questions about the once-staid municipal bond market, which states and cities count on to pay upfront costs for public improvements such as roads, parks and hospitals.
For many years, those bonds were considered safe investments — but those assumptions have been shifting in recent years as a small but steady string of U.S. municipalities, including Detroit, as well as Stockton and Vallejo in California, have tumbled into bankruptcy.
...At one point in 2013, an estimated three out of four municipal bond mutual funds held Puerto Rican bonds, which were attractive because of their high yields and exemption from federal, state and local taxes.
Puerto Rico’s governor, Alejandro Garcia Padilla, will seek concessions from creditors...
...A U.S. commonwealth with a population of 3.6 million, Puerto Rico carries more debt per capita than any state in the country.
...until now the government has been able to keep things moving by cutting spending and borrowing more and more money on Wall Street.
...Beyond the bond debt, the island owes some $37 billion in pension obligations to workers and former workers."
http://www.washingtonpost.com/business/economy/puerto-rico-says-it-cannot-pay-its-debt-setting-off-potential-crisis-in-the-us/2015/06/28/cbae1bc4-1e05-11e5-84d5-eb37ee8eaa61_story.html
6/29/15
"The world is defenceless against the next financial crisis"
"...The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.
These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.
...“Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”
...“Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates.
...Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates.
...The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organisation said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend.
And the continued misallocation of resources during busts prompted by central banks’s rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place.
...This problem is compounded as the world’s populations continue to age, the organisation warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS.
...The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms.
http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.
These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates.
...“Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.”
...“Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates.
...Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates.
...The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organisation said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend.
And the continued misallocation of resources during busts prompted by central banks’s rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place.
...This problem is compounded as the world’s populations continue to age, the organisation warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS.
...The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms.
http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html
6/28/15
Greece; Dear Ben Bernanke; Don't steal from my kids
The Fed did the Europeans a favor.
Joseph Gagnon
former Fed official
"The central banks of the wealthiest countries,
trying to prevent a debt crisis in Europe
from exploding into a global panic,
swept in ...by making it easier
...to borrow American dollars.
With what money from where?
Central banks will make it cheaper
...to borrow [US] dollars,
the dominant currency of trade.
Who is qualified by what metric
to borrow how much from whom?
To get the dollars to lend,
central banks go to the Fed and exchange their currency
for dollars under a special swap program.
What could happen
if a central bank prints currency for collateral
for printed money in return
and then do it again and again
untill gasoline is $10 per gallon?
...The coordinated action was a demonstration
of how interconnected the world financial system is,
and that the debt loads of countries like Italy and Greece
are everyone else's problem, too.
AP
Did some economic and political leaders
bail themselves and their compatriots out of their own mistakes,
by pledging trillions of debt and newly created money,
knowing the consequences would be handed down
to many who may be unaware
including the unborn of following generations?
Jim Grant on Libor, the Federal Reserve and the Status Quo, via Tyler
"You plant black walnut trees, and in 30 years they flower to $1000 each,
you pay $5 for them, that's a zero coupon tree,
that's where you get yield.
The Fed is not out of bullets;
the trouble is its gun shoot backwards.
These massive interventions in the marketplace distort the price
we call interest rates.
The banks fixed Libor.
The Fed fixes rates.
The banks do this surreptitiously and opportunistically.
The Fed does it for a living.
The idea ...that they are in charge of manipulating interest rates
is absurd.
The central banks do it all the time.
They do it massively.
The outrage ought to be directed at them...
Ever see the Truman Show
where Jim Carrey's character finds out he is living in a TV set.
He finds out because he rows his boat into the painted canvas sky:
that is life under the rule of central banks.
Everyone is talking about the "perfect storm":
the fiscal cliff, and China, and Greece, and Europe, there is a constellation of bad news:
the Wall Street Journal is the grimmest reading in years.
How can this be a perfect storm if we can see it coming?
Jim Grant via Tyler
Flashback; John Mauldin's selection of quotes with a little comment on the European Greece Deal
… the sixth time in 18 months European leaders
have announced a definitive solution to the Euro crisis.
Should this version of the final bailout be taken any more seriously
than the first and second solutions to the Greek crisis in May and September 2010
or the Irish bailout of December 2010 or the Portuguese rescue package of March 2011
or the breakthrough vote in the Greek parliament of last month?
The supposedly good news for markets
was that the -21% haircuts to be imposed on Greek creditors
...were less than half those suggested a few days ago.”
"A 21% haircut is a bad joke.
If you assume that Greece can afford to spend
10% of their revenues just to pay the interest,
which is what they will need to be able to do to get out of their crisis,
then the haircuts look more like 75-80%.
Sean Egan, the most credible credit analyst in the country,
estimated this week that the eventual haircuts on the Greek debt will be 90%."
...Here is what it really says:
We are going to keep throwing good money after bad
and work as hard as we can to transfer the debt that is on the banks to the ECB
and European taxpayers as long as the voters will let us.
This first tranche will be another €109 billion.
That will last a few years,
and Greece will only have to pay about 3.5% on that debt and the rollover debt,
and people who expected to be repaid in that period
will see payment extended to either 15 or 30 years.
You can call this what you like, and they call it “selective default,”
but it is a default.
There will be government guarantees on the debt,
so the ECB can take it from the banks."
...First, notice that the plan claims haircuts will only be 21%.
But that assumes you can sell the new bonds at a 9% interest rate.
If the interests rate demanded by the market are 15%, which is closer to reality,
the haircuts are closer to 67%, after what appears to be an initial 20% cut.
Will any institution not immediately
try and get those bonds into the hands of the ECB?
This is just ugly.
John Mauldin
The Central Bank Emperors with no clothes; Greece Edition
Since the 2008/9 financial crisis, the world's central banks, largest financial institutions, wealthy investors, advertising dependent media, paid for economists and entrenched politicians dependent on campaign cash/ bribes etc..., have been kicking the economic reckoning can.
Quantitative Easing caused low interest rates to prop up real estate, financial markets and social spending by financing public deficits with money created out of thin air.
Artificially imposed stability creates ever larger levels of real instability, no different than those with addictions to harmful substances.
Most global central bank balance sheets have at least doubled in seven years, and the European Central Bank came late to the game, with the worst balance sheets, the exception being Japan, which may reap some unintended consequences from Greece's financial mess.
Like Greece did after entering the Euro, many smaller European countries enjoyed the benefits of borrowing far more than could be repaid.
Other countries who could, took advantage of low interest rates while printing money to keep their respective currencies low relative to the US dollar.
When the Federal Reserve announced it would stop printing, US long term interest rates rose, affecting rates across the globe.
Then corporations stepped in with share buybacks.
Then England Japan, Switzerland and then Europe among others stepped into the printing breach.
If confidence falls and interest rates rise, the value of the underlying debt falls.
If values fall on government and corporate debt outside the US along with stock markets, investors should likely increase the extrication of monies from what appear to be more risky ventures, allocating heavily to perceived safe havens, compounding the affects of the problems triggering the bank runs.
The more investors begin to realize Quantitative Easing (printing money) didn't work, the sooner Emperors will appear to be holding up a financial house of cards, forcing the house to collapse with greater speed.
As the global economy is clearly slowing, many who didn't understand yesterday are suddenly awake, looking at naked Empires, now that the veil of QE can be seen for what it is.
I believe the world faces a massive debt restructuring, where investors and financial institutions take the hit instead of government bailouts like last time.
It's just a question of how and when a very pushed on string snaps back in the 1%'s faces.
This has taken far too long, which means the consequences are likely greater.
George Hartzman
Quantitative Easing caused low interest rates to prop up real estate, financial markets and social spending by financing public deficits with money created out of thin air.
Artificially imposed stability creates ever larger levels of real instability, no different than those with addictions to harmful substances.
Monetary heroin.
Most global central bank balance sheets have at least doubled in seven years, and the European Central Bank came late to the game, with the worst balance sheets, the exception being Japan, which may reap some unintended consequences from Greece's financial mess.
Like Greece did after entering the Euro, many smaller European countries enjoyed the benefits of borrowing far more than could be repaid.
Other countries who could, took advantage of low interest rates while printing money to keep their respective currencies low relative to the US dollar.
When the Federal Reserve announced it would stop printing, US long term interest rates rose, affecting rates across the globe.
Then corporations stepped in with share buybacks.
Then England Japan, Switzerland and then Europe among others stepped into the printing breach.
If confidence falls and interest rates rise, the value of the underlying debt falls.
If values fall on government and corporate debt outside the US along with stock markets, investors should likely increase the extrication of monies from what appear to be more risky ventures, allocating heavily to perceived safe havens, compounding the affects of the problems triggering the bank runs.
The more investors begin to realize Quantitative Easing (printing money) didn't work, the sooner Emperors will appear to be holding up a financial house of cards, forcing the house to collapse with greater speed.
As the global economy is clearly slowing, many who didn't understand yesterday are suddenly awake, looking at naked Empires, now that the veil of QE can be seen for what it is.
I believe the world faces a massive debt restructuring, where investors and financial institutions take the hit instead of government bailouts like last time.
It's just a question of how and when a very pushed on string snaps back in the 1%'s faces.
This has taken far too long, which means the consequences are likely greater.
George Hartzman
6/27/15
6/24/15
6/22/15
6/21/15
Fleas
Fleas put in a jar will jump out.
Fleas in a jar with a glass plate across the top will jump,
hit the plate, and stay in the jar.
Eventually, fleas in a jar with a glass plate across the top
won’t jump high enough to hit the plate.
If the fleas stop hitting the plate,
and the plate is removed,
the fleas won’t jump out.
If the removed glass plate is a metaphor for fear,
are you certain you’ve not been conditioned to fear glass plates
that aren’t there?
Fleas in a jar with a glass plate across the top will jump,
hit the plate, and stay in the jar.
Eventually, fleas in a jar with a glass plate across the top
won’t jump high enough to hit the plate.
If the fleas stop hitting the plate,
and the plate is removed,
the fleas won’t jump out.
If the removed glass plate is a metaphor for fear,
are you certain you’ve not been conditioned to fear glass plates
that aren’t there?
Martenson and Hussman's latest
"Present market conditions join the second most extreme valuations in U.S. history (on measures most reliably correlated with actual subsequent 10-year S&P 500 total returns) with increasing divergences and dispersion in market internals.
...overvalued markets have often become vulnerable to vertical air pockets, panics, and crashes.
...deteriorating market internals introduces a critical element of risk here.
...The same return/risk profile has been associated with vertical market losses in market cycles across history.
...we do see a much larger than normal share of issues trading at new 52-week lows than is typically consistent with a healthy advance or strong investor preferences toward risk.
...the 26-week average of that figure is greater than 4.75% of issues traded – a level that we’ve only seen a handful of times since the 1970’s.
...the median stock is more richly valued than at any point in U.S. history, including 2000.
The Federal Reserve hasn’t created a perpetual money machine. ...What the Fed has done is to encourage investors to chase yields and to speculate, to the point where stocks are now so overvalued that they can be expected to enjoy no further return at all over the coming decade.
Unless they 'print' money all the up to 0.
...there’s a common delusion that elevated stock prices represent wealth to their holders. That is a fallacy, and we can hardly believe that given the collapses that followed the 2000 and 2007 extremes, investors (and even Fed policymakers) would again fall for that fallacy so readily. The actual wealth is in the cash flows that are ultimately delivered into the hands of shareholders over time. Individuals can realize their paper wealth by selling to some other investor and receiving cash in return, but only a small proportion of investors can actually convert current paper wealth into cash by selling to other investors without disrupting the bubble.
There’s not a single market cycle in the historical record where the ratio of market capitalization to corporate gross value added (GVA) did not fall to about half the level that we observe today (or lower)."
http://hussmanfunds.com/wmc/wmc150601.htm
...overvalued markets have often become vulnerable to vertical air pockets, panics, and crashes.
Humans desperately need a new story to live by.
The old one is increasingly dysfunctional
and rather obviously headed for either a quite dismal
or possibly disastrous future.
One of the chief impediments: Denial.
Here we are,
7 years after the Great Financial Accident of 2008,
collectively pretending that it was a sign warning of the dangers we face
if we continue to assume perpetual growth.
...deteriorating market internals introduces a critical element of risk here.
...The same return/risk profile has been associated with vertical market losses in market cycles across history.
...we do see a much larger than normal share of issues trading at new 52-week lows than is typically consistent with a healthy advance or strong investor preferences toward risk.
...the 26-week average of that figure is greater than 4.75% of issues traded – a level that we’ve only seen a handful of times since the 1970’s.
...the valuation of the S&P 500 is within about 16% of the 2000 peak, on the most historically reliable measures we identify.
...the median stock is more richly valued than at any point in U.S. history, including 2000.
The Federal Reserve hasn’t created a perpetual money machine. ...What the Fed has done is to encourage investors to chase yields and to speculate, to the point where stocks are now so overvalued that they can be expected to enjoy no further return at all over the coming decade.
Unless they 'print' money all the up to 0.
...there’s a common delusion that elevated stock prices represent wealth to their holders. That is a fallacy, and we can hardly believe that given the collapses that followed the 2000 and 2007 extremes, investors (and even Fed policymakers) would again fall for that fallacy so readily. The actual wealth is in the cash flows that are ultimately delivered into the hands of shareholders over time. Individuals can realize their paper wealth by selling to some other investor and receiving cash in return, but only a small proportion of investors can actually convert current paper wealth into cash by selling to other investors without disrupting the bubble.
There’s not a single market cycle in the historical record where the ratio of market capitalization to corporate gross value added (GVA) did not fall to about half the level that we observe today (or lower)."
http://hussmanfunds.com/wmc/wmc150601.htm
We're now at the height of the largest set
of nested financial bubbles ever blown in world history.
Entire nations cannot bring themselves to talk openly
about their state of insolvency, let alone do something about it.
Chicago has amassed debt and underfunded liabilities
totaling $63 billion, or more than $61,000 per household.
That's $9,000 in taxes per year per average household
(which earns $38,625).
6/18/15
Quarterly US Corporate Pre-tax Earnings (US$bn) and S&P 500: 1Q’80 – 1Q’15
Notice how the BEA earnings cycle (darker arrows)
has a strong tendency to turn before the stock market
– both to the upside and to the downside;
 |
| https://www.linkedin.com/pulse/corporate-earnings-cycle-has-turned-negative-us-erico-matias-tavares |
The bad news is that the earnings cycle has just turned negative,
as indicated by the red circle.
And this could have important implications
for the stock market and the economy over the coming quarters.
6/13/15
Please help save $35,122,520 for City of Greensboro employees
City of Greensboro executive management is in possession of the following information which should provide roughly $125 per year in investment and administrative fee savings for about 2,780 City employees in Greensboro's 457 qualified retirement plan (like a 401k).
ICMA-RC's proposal for Winston Salem dated November 30, 2011 states "based on a full plan take over of approximately $20 million in plan assets with 1,149 participants." and "ICMA-RC's minimum annual revenue requirement is 0.34% of assets with a five year contract term."
And "Any revenue received from investment companies above our revenue requirement would be provided to the plan as an administrative allowance", which Greensboro currently isn't offered, as ICMA-RC now takes "Any revenue received from investment companies above" Greensboro's revenue requirement.
Winston Salem's report showing an Administrative Allowance;
Greensboro is currently allowing ICMA-RC to take excess fees from Greensboro's employees, as Winston Salem negotiated the excess fees to be returned to their employees' accounts.
Greensboro's report showing no Administrative Allowance;
ICMA-RC's proposal for Winston Salem also states "If there is a shortfall in revenue, ICMA-RC and the City shall mutually agree upon a method to make up the shortfall necessary to meet the revenue requirement", meaning there is a floor to how much ICMA-RC needs in revenues per participant, which Greensboro's Mary Vigue via Jim Westmoreland denied in a breach of trust to City of Greensboro employees.
.
.
The retirement plan consultant's letter to Winston Salem dated December 18, 2014 states "with respect to assets held in the Stable Value fund, the expense ratio of this fund includes 0.34% fee attributable to ICMA-RC services." and "the investment management fee appearing for the Stable Value fund is 0.48%."
And "the original “fee agreement” for ICMA-RC administration/recordkeeping services is 0.34% of plan assets; [Retirement Plan] Consulting will be monitoring the total dollar amount of these fees to ensure they remain reasonable given the inherent escalation of dollar revenue attributable to asset based fee structures (assuming the plan is growing e.g. new contributions and earnings).
Thus, we may determine the 0.34% fee needs to be calibrated lower in the future due to the growth in plan assets.
Alternatively, we will also evaluate a “flat dollar” fee arrangement for ICMA-RC services."
.
.
$20 million x 0.34% = $68,000 ICMA-RC minimum annual revenue requirement for 1,149 participants
$68,000 / 1,149 = $59.18 per participant
.
.
As of the 1st quarter of 2014, Greensboro had $87,898,314 in its ICMA-RC 457 plan
Greensboro has 2,781 participants.
2,781 x $59.18 = $164,580 Greensboro is now paying $242,640 for no reason
$164,580 / $87,898,314 = 0.19%
.
.
Greensboro should ask ICMA-RC to match Winston Salem's pricing;
For ICMA's VT PLUS [Stable Value] Fund, which had $36,415,538 as of 2014's first quarter,
0.19% + 0.48% = 0.67% instead of 0.82%.
The total cost for Greensboro's $36,415,538 stable value fund should be at most;
$36,415,538 x 0.67% = $243,984
0.67% instead of 0.82% = 0.15%
0.15% of $36,415,538 = $54,623 in savings, which would increase the yield to participants by about the same 0.15%.
By mirroring the Federal Government's Thrift Savings Plan, Greensboro could dramatically lower the cost and increase the returns via low cost index funds, whose expense ratios could be a bit lower if assets in each are larger than $5 million;
Vanguard Intermediate-Term Bond Index Fund Admiral Shares
Expense Ratio = 0.10% + 0.19% = 0.29%
Vanguard Extended Market Idx Signal
Expense Ratio = 0.10% + 0.19% = 0.29%
Vanguard FTSE All-World ex-US Index Fund Admiral
Expense Ratio = 0.15% + 0.19% = 0.34%
Vanguard 500 Index Fund Admiral Shares
Expense Ratio = 0.05% + 0.19% = 0.24%
.
.
$87,898,314 total - $36,415,538 Stable Value = $51,482,776
The total cost for Greensboro's $51,482,776 in bond and equity funds should be at most, about the average of 0.29% + 0.29% + 0.34% + 0.24;
0.29% + 0.29% + 0.34% + 0.24% = 0.29%
$51,482,776 x 0.29% = $149,300
$149,300 + $243,984 = $393,284 maximum total annual cost
$393,284 / $87,898,314 = 0.45%
.
.
As of 2014's 1st quarter, Greensboro's plan cost and estimated annual cost of $741,132;
$741,132 / $87,898,314 = 0.84%
.
.
$741,132 - $393,284 = $347,848 in total annual savings
$347,848 / 2,781 participants = about $125 more per participant in year one.
In 30 years, another $125 per year per employee compounded at 7% should leave another $12,634 each by mirroring the federal government's Thrift Savings Plan, designed with low cost index funds by federal employees for themselves, instead of a D.C. "non-profit" whose CEO makes more than $2 million per year.
$12,634 x 2,780 = $35,122,520
Renegotiating Greensboro's 457 plan fees could save plan participants about $347,848 per year, but City Manager Jim Westmoreland and Assistant City Manager Mary Vigue, indirectly affiliated with the plan's administrators, worked to prevent lower costs with the help of financial industry lobbyists.
Westmoreland and Vigue have acted in the best interests of a retirement plan company connected to their management association instead of the employees they are supposed to represent.
Please help retain more money in our community instead of letting Greensboro's retirement plan provider skim more than necessary by contacting City Council to advocate for the reallocation and renegotiation of the plan's funds and fees.
It's the right thing to do.
George Hartzman.
.
.
401k, 457, 403b's and the Federal Government's Thrift Savings Plan
http://hartzman.blogspot.com/2014/11/401k-457-403bs-and-federal-governments.html
Suggested City of Greensboro ICMA-RC fund changes by James Weight, Director, Relationship Management, Mid-Atlantic Region
http://hartzman.blogspot.com/2015/01/suggested-city-of-greensboro-icma-rc.html
"TriMet's 401(k)-type plan on the screen behind him and said that, outside the federal government's Thrift Savings Plan, this was "the best I've ever seen."
http://hartzman.blogspot.com/2015/01/trimets-401k-type-plan-on-screen-behind.html
How Jim Westmoreland, Mary Vigue and ICMA-RC's lobbyists shafted Greensboro's employees
http://hartzman.blogspot.com/2014/12/how-jim-westmoreland-mary-vigue-and.html
Concerning the contents of an information request concerning Greensboro's 457 plan
http://hartzman.blogspot.com/2014/12/concerning-contents-of-information.html
Greensboro ICMA-RC 457 plan fund alternatives which City management refuses to look into
http://hartzman.blogspot.com/2014/11/greensboro-icma-rc-457-plan-fund.html
Emails between City of Greensboro, Charlotte and some Winston Salem employees and their 457 Retirement Plan Provider
http://greensboroperformingarts.blogspot.com/2015/01/emails-between-city-of-greensboro.html
ICMA-RC's proposal for Winston Salem dated November 30, 2011 states "based on a full plan take over of approximately $20 million in plan assets with 1,149 participants." and "ICMA-RC's minimum annual revenue requirement is 0.34% of assets with a five year contract term."
And "Any revenue received from investment companies above our revenue requirement would be provided to the plan as an administrative allowance", which Greensboro currently isn't offered, as ICMA-RC now takes "Any revenue received from investment companies above" Greensboro's revenue requirement.
Winston Salem's report showing an Administrative Allowance;
Greensboro is currently allowing ICMA-RC to take excess fees from Greensboro's employees, as Winston Salem negotiated the excess fees to be returned to their employees' accounts.
Greensboro's report showing no Administrative Allowance;
ICMA-RC's proposal for Winston Salem also states "If there is a shortfall in revenue, ICMA-RC and the City shall mutually agree upon a method to make up the shortfall necessary to meet the revenue requirement", meaning there is a floor to how much ICMA-RC needs in revenues per participant, which Greensboro's Mary Vigue via Jim Westmoreland denied in a breach of trust to City of Greensboro employees.
.
.
The retirement plan consultant's letter to Winston Salem dated December 18, 2014 states "with respect to assets held in the Stable Value fund, the expense ratio of this fund includes 0.34% fee attributable to ICMA-RC services." and "the investment management fee appearing for the Stable Value fund is 0.48%."
And "the original “fee agreement” for ICMA-RC administration/recordkeeping services is 0.34% of plan assets; [Retirement Plan] Consulting will be monitoring the total dollar amount of these fees to ensure they remain reasonable given the inherent escalation of dollar revenue attributable to asset based fee structures (assuming the plan is growing e.g. new contributions and earnings).
Thus, we may determine the 0.34% fee needs to be calibrated lower in the future due to the growth in plan assets.
Alternatively, we will also evaluate a “flat dollar” fee arrangement for ICMA-RC services."
.
.
$20 million x 0.34% = $68,000 ICMA-RC minimum annual revenue requirement for 1,149 participants
$68,000 / 1,149 = $59.18 per participant
.
.
As of the 1st quarter of 2014, Greensboro had $87,898,314 in its ICMA-RC 457 plan
Greensboro has 2,781 participants.
2,781 x $59.18 = $164,580 Greensboro is now paying $242,640 for no reason
$164,580 / $87,898,314 = 0.19%
.
.
Greensboro should ask ICMA-RC to match Winston Salem's pricing;
For ICMA's VT PLUS [Stable Value] Fund, which had $36,415,538 as of 2014's first quarter,
0.19% + 0.48% = 0.67% instead of 0.82%.
The total cost for Greensboro's $36,415,538 stable value fund should be at most;
$36,415,538 x 0.67% = $243,984
0.67% instead of 0.82% = 0.15%
0.15% of $36,415,538 = $54,623 in savings, which would increase the yield to participants by about the same 0.15%.
By mirroring the Federal Government's Thrift Savings Plan, Greensboro could dramatically lower the cost and increase the returns via low cost index funds, whose expense ratios could be a bit lower if assets in each are larger than $5 million;
Vanguard Intermediate-Term Bond Index Fund Admiral Shares
Expense Ratio = 0.10% + 0.19% = 0.29%
Vanguard Extended Market Idx Signal
Expense Ratio = 0.10% + 0.19% = 0.29%
Vanguard FTSE All-World ex-US Index Fund Admiral
Expense Ratio = 0.15% + 0.19% = 0.34%
Vanguard 500 Index Fund Admiral Shares
Expense Ratio = 0.05% + 0.19% = 0.24%
.
.
$87,898,314 total - $36,415,538 Stable Value = $51,482,776
The total cost for Greensboro's $51,482,776 in bond and equity funds should be at most, about the average of 0.29% + 0.29% + 0.34% + 0.24;
0.29% + 0.29% + 0.34% + 0.24% = 0.29%
$51,482,776 x 0.29% = $149,300
$149,300 + $243,984 = $393,284 maximum total annual cost
$393,284 / $87,898,314 = 0.45%
.
.
As of 2014's 1st quarter, Greensboro's plan cost and estimated annual cost of $741,132;
$741,132 / $87,898,314 = 0.84%
.
.
$741,132 - $393,284 = $347,848 in total annual savings
$347,848 / 2,781 participants = about $125 more per participant in year one.
In 30 years, another $125 per year per employee compounded at 7% should leave another $12,634 each by mirroring the federal government's Thrift Savings Plan, designed with low cost index funds by federal employees for themselves, instead of a D.C. "non-profit" whose CEO makes more than $2 million per year.
$12,634 x 2,780 = $35,122,520
Renegotiating Greensboro's 457 plan fees could save plan participants about $347,848 per year, but City Manager Jim Westmoreland and Assistant City Manager Mary Vigue, indirectly affiliated with the plan's administrators, worked to prevent lower costs with the help of financial industry lobbyists.
Westmoreland and Vigue have acted in the best interests of a retirement plan company connected to their management association instead of the employees they are supposed to represent.
Please help retain more money in our community instead of letting Greensboro's retirement plan provider skim more than necessary by contacting City Council to advocate for the reallocation and renegotiation of the plan's funds and fees.
It's the right thing to do.
George Hartzman.
.
.
401k, 457, 403b's and the Federal Government's Thrift Savings Plan
http://hartzman.blogspot.com/2014/11/401k-457-403bs-and-federal-governments.html
Suggested City of Greensboro ICMA-RC fund changes by James Weight, Director, Relationship Management, Mid-Atlantic Region
http://hartzman.blogspot.com/2015/01/suggested-city-of-greensboro-icma-rc.html
"TriMet's 401(k)-type plan on the screen behind him and said that, outside the federal government's Thrift Savings Plan, this was "the best I've ever seen."
http://hartzman.blogspot.com/2015/01/trimets-401k-type-plan-on-screen-behind.html
How Jim Westmoreland, Mary Vigue and ICMA-RC's lobbyists shafted Greensboro's employees
http://hartzman.blogspot.com/2014/12/how-jim-westmoreland-mary-vigue-and.html
Concerning the contents of an information request concerning Greensboro's 457 plan
http://hartzman.blogspot.com/2014/12/concerning-contents-of-information.html
Greensboro ICMA-RC 457 plan fund alternatives which City management refuses to look into
http://hartzman.blogspot.com/2014/11/greensboro-icma-rc-457-plan-fund.html
Emails between City of Greensboro, Charlotte and some Winston Salem employees and their 457 Retirement Plan Provider
http://greensboroperformingarts.blogspot.com/2015/01/emails-between-city-of-greensboro.html
6/7/15
"What do you think the problem is?"
Our entire economic paradigm is built upon desperate measures.
http://hartzman.blogspot.com/2014/10/our-entire-economic-paradigm-is-built.html
These people are funded by those
who both created and continue to profit
from the problem's created since the turn of the century.
"History will surely see QE as a major mistake"
http://hartzman.blogspot.com/2014/11/telegraph-history-will-surely-see-qe-as.html
Elizabeth Warren and Richard Shelby Mash up on Too Big to Jail with some prosecutable evidence
http://hartzman.blogspot.com/2014/09/elizabeth-warren-and-richard-shelby.html
"Bank of Japan emerging as big Japanese stock buyer" and "Central Banks Trade S&P 500 Futures"
http://hartzman.blogspot.com/2014/08/central-banks-trade-s-500-futures.html
"How much do central banks need to inject to keep the stock market from crashing?
http://hartzman.blogspot.com/2014/10/how-much-do-central-banks-need-to.html
The source of America's record wealth inequality = Central Bank Money Printing
http://hartzman.blogspot.com/2014/11/the-source-of-americas-record-wealth.html
Swim at your own risk; Percentage of Unprofitable IPOs and some other pretty scary economic indicators of what's coming
http://greensboroperformingarts.blogspot.com/2015/06/swim-at-your-own-risk-percentage-of.html
6/3/15
"The US economy has lost some momentum after an initial bounce-back from weather-related weakness at the start of the year"
“Alongside the slowdown in manufacturing, the services PMI points to the weakest pace of US economic growth since January."
“The softness of the data raises big question marks for policymakers over the strength of the rebound and whether the economy is losing momentum as it heads into the summer."
“The strong dollar is clearly hurting, with new orders growth deteriorating in both manufacturing and services."
“The softness of the data raises big question marks for policymakers over the strength of the rebound and whether the economy is losing momentum as it heads into the summer."
“The strong dollar is clearly hurting, with new orders growth deteriorating in both manufacturing and services."
6/2/15
6/1/15
French Unemployment, May Consumer Spending and "Goldman's chief equity strategist, David Kostin" on buybacks and valuations
"by almost any measure, US equity valuations look expensive. The typical stock in the S&P 500 trades at 18.1x forward earnings, ranking at the 98th percentile of historical valuation since 1976. For the overall index, the aggregate forward P/E multiple equals 17.2x, a rise of 63% since September 2011, compared with the median expansion of 48% during 9 previous P/E expansion cycles. Financial metrics such as EV/EBITDA, EV/Sales, and P/B also suggest that US stocks have stretched valuations. With tightening on the horizon, the P/E expansion phase of the current bull market is behind us."
US equity valuations are also historically extended when adjusted for the extremely low interest rate environment. For example, during the past 40 years when the real interest rate (10-year Treasury less core CPI) was between 0% and 1%, the S&P 500 forward P/E multiple averaged 11.2x, well below the current level. Moreover, since 1921 (94 years) when real interest rates have been 0%-1%, the trailing P/E multiple has averaged 13.5x, which is 27% below the current trailing S&P 500 index multiple of 19x.
Valuation looks even more striking in the context of current profit margins—the highest in history. Since 2011, margins for S&P 500 (ex-Financials and Utilities) have hovered around the current 9% level. Information Technology has been the driving force for the overall margin expansion. Profits are highly sensitive to small changes in margins: every 50 basis point shift in S&P 500 margin translates into a roughly $5 per share swing in EPS. Given the current P/E multiple, a $5 shift in EPS would translate into a swing of nearly 90 points to the valuation of the S&P 500."
http://www.zerohedge.com/news/2015-06-01/almost-every-measure-stocks-are-overvalued-warns-goldman-after-slamming-corporate-bu
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