What caught my eye this week.
I noticed an article in This Is Money this week featuring a reader upset that their pension hadn’t been life-styled into lower-risk assets as they’d hoped.
Instead, they wrote:
…my money remained in a fund rated moderate-high risk/high reward until March 2020.
At this point, I realised what had happened and asked for the switch to be made manually. The same month, I asked for my pension date to be moved forward five years to March 2025.
Shortly after, the stock market plummeted due to the pandemic and I am now entering retirement with a shortfall in my fund.
Judging solely on the facts presented, you can see why the reader is aggrieved.
The pension provider seems to have sent out literature describing a de-risking process that was never going to happen to this person’s fund, due to it being from some earlier vintage. Hence the confusion.
What’s more, the reader tried to take evasive action themselves but that ultimately come to naught too.
Apparently the case was investigated by the Financial Ombudsman, and the pensioner provider was not found to be accountable. I won’t second guess that ruling.
However there’s a bigger picture lesson here. It’s reminder that today’s pension freedoms so beloved by the likes of us Monevator types have come with downsides.
Not everyone wanted this job
Trying to manage a defined contribution pension – the biggest lump of money most of us will ever get near to – is daunting enough for most people when it comes to their saving and investing years.
But when it runs into the trickiest problem in finance – the switch to drawing down your pot – the risks multiply faster than you can say “who let the 47th into the war room?”
Only a couple of years ago, the papers were writing horror stories about the dangers of life-styling pensions after the big bond rout. (The article above cites a nicely balanced one of its own from 2022).
But now global equities have wobbled, it’s understandable that some near-retirees might instead be wondering why they didn’t have a bigger safety cushion.
Unlucky for some
People underestimate how hard this conundrum is to resolve, because we want to believe in certainties.
But in my view it’s not even necessarily that the pension providers – or the investors – should be doing anything different, even though with hindsight there will always have been an optimum course to follow.
Rather, it’s that individuals are running into the maelstrom of sequence of return risk and the complexities of drawing down a pension as, well, individuals, rather than spreading the risks with others as under the defined benefit pensions of old.
We might understand some people will see their pensions plunge before retirement because they took too much risk. Shrug and say that’s on them.
Stock market crashes happen. These guys rolled snake eyes.
But, firstly, the typical person isn’t (sadly) a hyper-aware Monevator reader. And secondly, there but for the grace of God and all that.
Terribly unlucky things can happen in the stock market. Both to individuals and to entire countries and generations.
While the analogy isn’t perfect, you might as well say an overweight person should have seen their heart attack coming even while you splutter through your own deep pan pizza and play the percentages with your own arteries.
We’re not going to go back to defined benefit company pensions.
But thinking about all this, it’s easy to see a case for bigger private/public partnership pensions – where millions of members together smooth the sequence of return risks.
The case for no-hassle annuities looks stronger these days too, as a way of simplifying drawdown.
But again, that’s because payouts are currently pretty good. If taking out annuities becomes all the rage and yet we slide back into a low-rate era again, you can guarantee that trend will overshoot the new reality.
Armed and dangerous
I sometimes wonder if we write too much about pensions, drawdowns, and so on these days. I just about remember being young, and I’m sure it’s all a bit off-putting to anyone under 40 who stumbles across Monevator, compared to if they saw an article about the fun stuff.
But this constellation of issues is why we keep returning to – or even belabouring – the subject. A little knowledge combined with a lot of responsibility for your own retirement is a dangerous thing.
We can try to do our own small part to address the knowledge deficit.
But the heavy personal responsibility part is here to stay.
Have a great weekend.
From Monevator
What’s the safe withdrawal rate danger zone? – Monevator
How Warren Buffett got rich – Monevator
From the archive-ator: Types of entrepreneurs – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
The UK government borrowed almost £15bn more than expected last year… – Sky
…and the economy is suffering a slump in exports to the EU – City AM
Average energy bills to fall 9% in July – Guardian
Small pension pots will be automatically merged under new plans – Pensions Expert
Bakery chain turns its 400 workers into owners – BBC
More than £800m of state pension underpayments identified – Standard
IMF urges baby boomers to keep working into their 70s – Independent
Zopa Bank doubles profit amid IPO speculation – City AM
Warren Buffett’s Berkshire Hathaway now owns 4.89% of the entire US Treasury bill market – Barchart
Unrealistic trade demands put US recession probability at 90% – Apollo
Products and services
How can investment platforms offer such high rates? [Search result] – FT
Nationwide’s new Best Buy mortgage rate is 3.89% – This Is Money
How to save money on overseas transfers – Which
Get up to £1,500 cashback when you transfer your cash and/or investments through this link. Terms apply – Charles Stanley
More major lenders relax their mortgage borrowing rules – This Is Money
Are NS&I’s British Savings Bonds worth opening after rates rise? – Which
The wedding racket: how tying the knot became so expensive [Search result] – FT
Get up to £4,000 when you transfer your ISA to InvestEngine our link. (Minimum deposit of £100, other T&Cs apply. Capital at risk) – InvestEngine
Help to Save expands to offer £1,200 in bonuses to more people – Which
Can you really buy a Birkin direct from a Chinese factory? [No…] – GQ
How to grow £1.50 supermarket basil into a bush – House Beautiful
Quirky converted homes for sale, in pictures – Guardian
Comment and opinion
Give your kids money now, not later – Of Dollars and Data
The rise of UK property guardians: “I like quirky and offbeat” – Guardian
How market turmoil made low-volatility stocks great again – Morningstar
The Holy Trinity of assets – A Teachable Moment
Signs of hope in Labour’s top-secret plan for new towns – Guardian
A stupid decision to sell a rental property – FIRE v London
All-in US TIPS, with yields at 30-year highs? [Very US but interesting] – Economic Matters
The secret fees behind $9.7 trillion in ETFs – Morningstar
Costs count: the trouble with accessible factor investing [Research] – Alpha Architect
Naughty corner: Active antics
Thinking the unthinkable about US assets – Behavioural Investment
How do typical individual investors research stocks? – Larry Swedroe
The best and worst assets to own after a bear market – Trustnet
Kindle book bargains
A Man for All Markets by Edward O. Thorp – £0.99 on Kindle
Million Dollar Weekend by Noah Kagan – £0.99 on Kindle
Great Britain? by Torsten Bell – £1.99 on Kindle
The Moneyless Man by Mark Boyle – £0.99 on Kindle
Environmental factors
How much does it cost to insulate a draughty British house? – This Is Money
Ghost forests are growing as sea levels rise – Ars Technica
Elon Musk-backed XPrize just doled out $100m to carbon removal projects – Fortune
Wood-burning stoves to be allowed in new homes despite concerns – Guardian
Robot overlord roundup
The many fallacies of ‘AI won’t take your job, but someone using AI will’ – Platforms
More-than-human science – Aeon
Image generation: 2023 and now… – Tom Tunguz
…and why taste matters more than ever – Fast Company
Our messed-up times mini-special
The rise of the infinite fringe – The Verge
Slop world: how the hostile Internet is driving us crazy [Search result] – FT
An autopsy of American exceptionalism – Cullen Roche
Not at the dinner table
Martin Wolf on Trump’s shakeup of the global order [Podcast] – OddLots via Apple
How the Republic falls – Democracy Americana
The US labour force over the last 150 years – A Wealth of Common Sense
Trump’s war on measurement… – ProPublica
…and the scientists trying to save their data from deletion – BBC
Silicon Valley got Trump completely wrong – Vox
A trade war with China is a very bad idea – Atlantic [h/t Abnormal Returns]
Off our beat
Conjuring imaginary creatures – Nautilus
DuoLingo: its next move is teaching chess – VentureBeat
Always invert – The Better Letter
Treadmills are out, barbells are in – Guardian
The last letter – Aeon
Enough is Enuf by Gabe Henry – Guardian
And finally…
“We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.”
– Warren Buffett, Berkshare Shareholder Meeting 1998
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“Not everyone wanted this job” Tell me about it! And the pension providers make it a nightmare. I’m a long term Monevator reader (for which I am eternally grateful – and I’d like to think therefore I’m pretty savvy about the whole field) , managing my, and helping partner and mother manage, DC pension pots – I am constantly driven close to foaming rage by the p**s poor access to information, employers changing providers, scheme provider being different from investment manager, providers switching investment managers and therefore switching funds , with no history carried over, inability to remember login details because it’s a new portal from a new provider. Let alone the inability to use any tools to compare fund performance because they are always ‘special’ versions of funds you can’t easily look up.
And why does my DB pension send me an annual statement about who they are giving pensions to, and how well funded it is, but dont automatically give me a rough forecast of my own future entitlement (ie the indexing)?
Literally this morning my wife was trying to understand why the contribution allocation she had set on her DC (to a cash fund – we really are getting close now,..) only seemed to apply to about 1/3 of the money going in , because the rest had a strange contribution type that she couldn’t direct via the website – so thats a call next week to somebody in a call centre who doesnt really know what they are talking about to try and fix it – and she only noticed it by chance.
Apologies to all for the rant – for some reason when the sums concerned get large, I get a little tense……
@AboutToPressTheButton That! When I retired with a DB scheme (superceded in the nineties). I left on a Friday and automatically got my first payment a few days later. (There being no link between salary payday and pension payday you could get paid twice in the first month).
My wife however is, like you, struggling with how to access her pension. There’s no easy flow chart. And she rightly resents paying a financial advisor to sort out what should be easy. She might swallow a flat fee. But no way a percentage.
Hope yours works out.
Strikes a big chord with me! I breezed through the internet crash and the GFC confident my 60/40 portfolio would get there in the end – a six figure salary at the time makes things a lot easier – human capital. Accumulation was so easy in hindsight!
But 9 years into retirement I agonise over more bonds? linker ladder? annuities? less US? Perhaps I have too much time on my hands!
I console myself that after 9 years my cumulative investment returns are 2x my withdrawals. So sequence of returns been in my favour I guess. Arguably I should spend more.
But even this “orange wobble” – which viewed on an Apr year-end basis sees my 2024/25 results as a 1.8% gain total return, so hardly a disaster! – sends me scurrying off to check my strategy.
I have friends with traditional annuities from company pensions and others with inflation-linked public sector pensions where the possible demolition of the US & Dollar led world order is just a current affairs topic! It’s hard “doing this job” – but tiny violins in the big picture.
I’ve contacted my pension provider repeatedly with a simple question. They offer life-styling. I want to know whether the strategy for life-styling is premised on someone buying an annuity, or someone going into drawdown.
Surely they must know.
Each time, I get fobbed off with a long-ish email full of vague information-for-beginners – but no answer to my question.
It makes such a big difference. As someone wanting to annuitise, I need to understand the level of risk as the date approaches. Unfortunately their fund structures are so opaque that the fund fact sheets don’t help either.
Not sure what else I can do. Write directly to the trustees…?
@ Haphazard – all schemes are required to have an internal dispute resolution procedure (IDRP). You could think about raising a formal complaint under that arguing that the scheme’s communication on this point isn’t up to scratch and re-iterating your question. It might not be quick, but your complaint should be considered by someone with a bit more experience, and it might even prompt a rethink of how they explain things in their member communications.
the transition to whole of UK on DC pensions must be a disaster waiting to happen right? DB is such a better approach for almost everyone. They just need to adjust the generosity dial?
Maybe the disaster is happening but slowly?
Had similar issues with lifestyling. I have mentioned it twice to the pension rep that I wanted to retire early – by email and in video call – and wanted the lifestyling adjusted accordingly. Every year, each statement suggests I will be retiring later than I indicated, and the fund allocation appears to suggest the same.
I found managing my own DC pension mostly OK during the accumulation phase — during which I had to use employer’s chosen provider/platform — but I did get to choose assets classes and funds. However they were deeply annoying at times and I nearly had to use the ombudsman to get them to let me do something complicated with Pension Input Periods that their own literature said was the only option available to someone in my position, but they finally relented. They even (to my surprise) let me do “scheme pays” when it was sadly required.
But I moved everything to SIPPs as soon as possible and these platforms are in my experience massively more flexible and informative, and it’s a shame I couldn’t use them for our DB pensions (as I did for our ISAs) much earlier on.
I’m massively happy that whole “nannying” of DB, inflexible funds, annuity as the only option, and (even when drawdown first came along) GAD limits, is mostly behind us. People should have control regards what they do with their money, and yes, this does mean some people may make bad choices, or just uninformed or unlucky ones.
> and yes, this does mean some people may make bad choices, or just uninformed or unlucky ones.
Probably most people. I know too many over 50s all in cash, their only saving grace is thy have some part DB, and usually a full SP NICs.
BoE inflation calculator tells me £5.75 twenty years ago needs £10 now. It’s not unreasonable to expect a 20 year retirement. £4.94 30 years ago equals £10 now – an early retiree could expect a 30 year retirement, though I suppose they are less likely to have an ‘in cash I trust’ attitude.
But, but but – stock market = casino they say…
The link above about 30y TIP yields has caught my attention. The author claims that Stephen Miran, who wrote a US government report detailing a plan to restructure the US debt some people claim to be the idea behind a possible Mario Lago accord, was his student.
He mentions several plausible reasons why the probability of the US defaulting on TIPs or manipulating CPI in the future would be remote. But he fails to mention that the chance of the US defaulting on TIPs is larger than that of defaulting on conventional treasury bonds. Any government can always pay conventional bonds issued in their own currency by printing money but this fails when the bond is inflation linked.
According to this paper I’ve found in the Atlanta FED website, the recovery rate for TIPs might be 18% lower than that for conventional Treasury bonds:
https://www.atlantafed.org/~/media/Documents/research/seminars/2019/hsu-021919.pdf
@Tom-Baker Dr Who
I suspect another factor would be the US debt ratios for fixed-rate and index-linked bonds. If the majority of the debt is in fixed-rate bonds, than printing currency is still a (short) term solution.
I do wonder whether employer dc pensions if they haven’t been changed to take into account pension freedom could be the next misselling scandal.
The employer is no longer trustees of the scheme in most cases but could there Be an argument they have a duty of care to their employees?
I work on commercial insurance side of financial services but often discuss pension arrangements and there’s alot of smaller employers who have gone down the nest route and I do wonder about future liabilities if staff don’t have adequate retirement funds (leaving aside that minimum auto enrolment won’t get them there anyway)
Also @ermine yes my dad since returning to the UK is completely in cash . Net worth of £3m (£1m in property) age 73 probably spends 50 to 60k a year he says he doesn’t need to take risk of investing.
I can’t decide whether he’s right or foolish
@Fatbritabroad
Well he isn’t going to run out of money before he dies so long as he doesn’t rquire a Nursing Home. I’ve seen the argument for staying in Cash, but in reality thought you need to have a very significant pot to do it or be so much later in life and not end up in a Nursing Home that you could be safe!
You say under-40s might be bored by pension talk. I’m mid-30s and spend a lot of time thinking about my pensions, as do my similarly-aged colleagues albeit to a lesser extent. Most of us have little confidence the state pension will exist in a useful form for us, and we discuss pension plans openly at work in a way that I doubt would have been common for earlier generations. I think gen X will have it worst but millennials and gen Z are already pessimistic enough we will be caught less by surprise by our pension predicament. Although there will still be a large cohort who understand the problem but are too poorly paid relative to cost of living to avoid it
Small typos – “do own own” and “private/pension partnership pensions” (private/public?)
FT article on the rise of AI slop is timely. I can’t count the number of times I’ve clicked on a link only to find AI generated fluff content and shiny but completely soulless illustrations with zero artistic merit. Makes me value this weekend round up even more with every one of these pieces written by a human who cares – typos and all.
@all — Thanks for the sharing your experiences! If the savvy Monevator audience feels this way, we can only imagine what the average person is experiencing. That said, I agree I wouldn’t want to go back to the pre-Freedoms era either.
@TBDW — I suppose duration is a factor also? As in what percentage of the TIPS are of any meaningfully long duration? At the very short end there’s probably the possibility of printing more conventional to repay the TIPS too? Albeit the whole issue is surely more one of credit risk / credibility at that point, I’d suggest, rather than monetary specifics. From memory the UK has a much higher stock of longer duration inflation-linked government bonds, incidentally.
@mr_jetlag — Ack, thank you, those are frustrating as always! I knew I was under pressure proofreading this one I was up against the clock, it was already midday! No AI is going to sweat that… 😉
@Northern Lad — Interesting, thanks for sharing. Maybe when we finally redesign the look and feel of Monevator it’ll attract a few more younger people back too.
@NorthernLad
I find the state pension won’t exist for me argument to be quite interesting. Arguably it’s the one benefit that has substantially improved in recent years even through austerity. Yes the age you get it has increased, but this could be argued that this is a reflection that for most people their life expectancy has also increased and therefore the benefit they will receive has increased as well. I would further argue that if there is one aspect of the social contract that is most likely to continue it is that governments will continue to prioritise supporting older people who vote in larger numbers than the younger. For example which would be more likely not to exist in 30 years – the state pension or job seekers allowance?
@TBDW (#10):
Larry K (“the author”) is a Econ Prof of some standing. I first saw him mentioned [in PF cycles] wrt his lifecycle work around consumption smoothing: see e.g. “his” original tool ESPlanner. What is possibly less known about him is he dislikes both major US parties and he has stood as a US presidential candidate twice. IMO, the wikipedia page about him is worth a read.
@Fatbritabroad (#13)
Assuming a 0% real return on cash (and that is a big assumption) and another 30 years of life to 103yo (not impossible – we know two people of that age), then an inflation adjusted withdrawal of £66k would be good with just the £2m cash (ignoring downsizing the property/properties). However, worst historical real returns for UK cash (using treasury bills as a proxy) were -1.3% over 30 years and -3.0% over 20 years, so cash is not necessarily ‘safe’.
At 73yo, a single life RPI annuity can be had with a payout rate of about 6.5%, so just under £800k premium would provide a lifetime supply of £50k per year with only government default risk (which would also affect cash).
Abouttopressthebutton – feel for you and agree, a lot of unnecessary complexity and very little consideration given to employees who don’t hold deep financial knowledge / the desire or time to get to the bottom of it. And they wonder why apathy is so common. Keep it simple and accessible and people would be far more engaged.
As has been touched on, companies don’t care about DC plans beyond their contribution, so don’t see change coming any time soon.
@Ben Ber, @Al Cam, and @TI – I will have a look at Larry K’s Wikipedia page, thanks for mentioning it!
The paper I linked in my previous post claims that the market prices TIPs with a higher risk of default than ordinary Treasuries. They claim that you get higher coupons after inflation with TIPs than you should compared to conventional Treasuries to compensate for the larger risk of default. They compare the break even inflation rate derived from TIPs and ordinary Treasuries with that derived from inflation linked swaps accounting for counterparty risk and then look at the correlation with the default risk implied by credit default swaps.
Yes, the maturity should matter. It would be much harder to pay a long maturity inflation linked bond than a short one. But I can imagine a government easily paying a 30-year bond issued in their own currency by keeping inflation high but not too high that it gets out of control. With moderately high inflation that bond will be worth much less than its original value. The problem with inflation linked bonds is that no matter how high inflation is, their value remains the same forcing a government under distress to default. IMHO it’s not so dissimilar to having a bond issued in another country’s currency that you are not free to inflate by printing more of it.
This brings me to the question that I have been thinking about motivated by this point: what would be safer? To buy inflation linked guilts or an inflation linked term annuity with the same maturity? Would our government be more likely to default on the inflation linked guilt or on the promise to protect you if the insurance company fails?
@TI- I had listened to the Odd Lots interview with FT’s Martin Wolf during the week. It’s a real treat! Thanks for liking it. I think most Monevator readers will appreciate it.
Enjoyed the article on TIPS and investing too, thanks. & the suggestion to check out the author Larry K’s Wikipedia too, thanks @ A1 Cam.
Some zingers in the article. The plans of Trump’s key economic advisor Stephen Miran (his former student) are “hare-brained”. Is Trump actually a “Manchurian Candidate”?
As to how to invest, in his opinion TIPS seem to be least bad longer-term option? “I’m not certified by any Wall Street-approved program to give financial advice. Consequently, I haven’t been brainwashed to believe that stocks are safe in the long run or that (nominal) bonds are safe in the short and medium term — neither of which is remotely true. Both securities are now incredibly risky.” …. “We don’t stay in an open field when lightening begins to strike. And there is no need to do so when MC risk goes sky high. To repeat, if the stock and bond markets lose value, even major value, there is nothing that guarantees those losses will be offset by future gains.”
Touche!
P.S. @ Fatbritabroad,: you say your dad is 73 and wanting to avoid stocks and bonds & you ask if he’s right or foolish. I think that article gives a pretty good response? Also, playing Sherlock, the Wikipedia of author Larry K has him at that same age and living in Boston … and he makes a very clear case to not assume that nominal bonds and shares will come good in the ‘foreseeable’. Joining the dots … I conclude that your dad is highly respected Economics professor Larry K and I claim by £10!
@Vroom (#23):
Very good – but I think we will need at least a certified photo of @Fatbritabroads father and you together!
The Boston Uni** (BU) lot (which includes Zvi Bodie as well as Larry K) have always been very pro TIPS and have always been deeply sceptical (to put it politely) of SWR-only approaches to de-accumulation* – so there is in fact really nothing new in the LK message; apart that is from the small matter of a re-elected, & seemingly super-charged, Orange one – who Larry K incidentally lost out to in the 2016 POTUS election!
There is a lot of doom and gloom around this latest version of the Orange one – but I am totally unsure where this all might go, if anywhere?
*floor and upside being the favoured economists approach and the BU guys are pretty hard over on TIPS for flooring too. IMO “Larry K’s” latest tool MaxiFi is worth digging into too; especially what he calls “upside investing”. AFAICT, these guys are not against equities per se, but just question if they can reliably be the whole solution to de-accumulation.
**I had to smile at Larry K poking fun at Miran’s Harvard PhD [vs BU] – did you by any chance clock where Larry K got his PhD from according to Wikipedia?
I don’t think the basic parameters have changed-lot of noise about at the moment-nothing new in that for long term investors
Compared with my peers who were financially keenest on their houses -once I had the basics in place for a wife and 3 kids ie enough shelter from the elements-a cottage(still in it!),enough food and heat-I concentrated my efforts on saving and learning about investing
Wife a teacher with a good pension but I was freelance and had to do my own thing
Now 23 yrs rtd ,aged 78 -seems to have worked so far
My thoughts-invest in a global equity index fund and a global bond index fund (hedged ) in the asset allocation your personal stomach acid/sleepless nights can stand-preferably in tax advantageous wrappers ie Pensions and ISAs
Then leave the stockmarket well alone and concentrate on on those items under your direct control ie save as much as you can,watch costs and live frugally
I have managed using Total Returns SWR of 3.3-3.8% over the years-will it be the same going forward-who knows -probably
If Armageddon occurs then investment will be the least of our problems
xxd09
Thanks for the article.
I too read the article about 30 year TIPs and am not sure what to make of it.
My wife is being chatted up by a (big) wealth advisory company, the idea being to get a financial health check and put in place a service she can use if I become unavailable.
It was amusing to see in their blurb that they cannot bring themselves to use the word ‘death’. Their graphical timeline terminated with ‘mortality’. Wonder how many committee meetings wrangled over choosing that terminology.
Most of this resonates with me. DC is a game which is rigged against the little guy and places stress on many (or would do if they truly understood the risks that have been transferred to them). As someone periously close to button pushing obviously the Trumpaggedon is not exactly making me comfortable but a number of years ago I came to terms with the fact that I was going to have to stay invested in retirement and thus that lifestyling was not really the simple solution it was presented as. Lifestyling seemed predicated more on ensuring providers were not sued on dramatic falls in equities pre scheme retirement age than in really being adapted to drawdown needs over what might be 30+ years of retirement.
The pensions industry (both employer side and providers) should do better. They make clear information so challenging to obtain and obfuscate it so it cannot be construed as advice that it makes it hard for even the best informed “customer” to truly inventorise their position and make appropriate and timely adjustments.
Re: state pension, I am around the same age as Northern Lad and would likewise be very surprised if it exists (or exists in as similarly generous form) by the time I hit the pension age. We can barely afford it now, never mind when an ageing population gives us two or three numbers the times of pensioners while the working age population falls – and that’s before you take a view on how much the UK’s managed decline will accelerate or otherwise. It should be thought of as a potential windfall and not in any way planned for, in my view.
Another reality check for investors is the very large sums required for a satisfactory pension-outweighing by a good margin the price of a house
A touchstone I used was that £100000 in a 60/40 portfolio would get you an income of £3000 pa before tax
When I started out all those years ago £4000 of income pa before tax was achievable but I played safe with an aim of a 3% SWR during my accumulation phase
Frighteningly large sums required
xxd09
Re: #10,11,17,22 @TBDW, Ben Ber, TI and on the Cullen Roche & Economics Matters links:
It’s very worrying on one level, and maybe this is ‘the Big One’ / paradigm shift which dethrones and decentres US Treasuries as the go to risk off asset. And perhaps TIPS go down with this too.
But…
It’s not like there haven’t been plenty of crises of confidence in the US financial system and around US assets before.
Nixon and Fed Chair Arthur Burns mishandling policy rates and inflation expectations.
The double oil shocks of 1973/4 & 1979/80.
The crash of 1972-4 and double dip recession in 1981-2.
October 1979 and the Fed under Volcker fixing short-term rates at 11.6%. By the end of that month, they’d be 16%. In less than a year, they’d reached 20%.
And 10 year Treasuries went on to hit 15.84% in 1981
Imagine that now. A FOMC rate of 20%.
People would go completely and utterly nuts.
It would put tariff Armageddon concerns firmly in the shade.
And yet US exceptionalism survived the decade after 1972, and indeed went on to thrive.
Nothing is a given in this world, and the future is a foreign country.
Perhaps America is now circling the drain.
Or perhaps its best days still lie ahead of it.
I’d be inclined only to expect the unexpected and maybe adopt for the US what they used to say about Russia – she’s never as strong as she looks, and she’s never as weak as she looks.
A few old phrases comes to mind.
The only constant is change
The only certainty is uncertainty
What goes round, comes round
History doesnt’t repeat, but it certainly rhymes
Nothing changes, but everything changes
The future is uncertain
Expect the worst but hope for the best
I could go on but hopefully for those who have built their pathway on certainty there is a message that there is no certainty, but the roulette wheel will keep spinning and we don’t know where it will land, but the world will hopefully go on and the Democracy process will win!
After a long absence from commenting, and “yes” I would say this wouldn’t I, just buy an RPI-Linked Annuity from some or all of your DC pot. That’s all.