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Tennessee’s State Retirement System Feels The Pain As Turkey ETF Crashes 50%

"Inflammatory and stupid".

"Inflammatory and stupid".
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4 comments on “Tennessee’s State Retirement System Feels The Pain As Turkey ETF Crashes 50%

  1. It’s the age old game of “Don’t touch the Stove”…no matter how many times you warn them, no one believes they will get burned until they do…unfortunately, by that time, they have 3rd degree burns and the skin is peeling off…

  2. Anonymous

    This boils down to Nashville being a college town as well as state capital. Sure it’s trying to manage its pension fund effectively in the modern economy, but it also needs revenue and the modern university model demands evidence for a worldview that doesn’t reflexively condemn the emerging economies.

    Hedging hedges with hedges while Bloomberg bashes the IPhone X incessantly today….fun times…

  3. Anonymous

    That comment appended was f’n hilarious….

  4. Thomas Higgins

    Admittedly, this investment was ill advised, but we would do well to ask ourselves why they made that decision. Presumably, they have an MBA or similar qualifications, so they must understand the implications.

    I’ve seen various studies indicating that pension funds need about an eight percent annual return to satisfy their responsibilities to retirees on an ongoing basis. I imagine that TSRS is no different.

    Because of the near-zero interest rate regime, all pension funds (not just TSRS) are falling well short of their objective. It would be one thing if this situation occurred for a year or so, but it has prevailed for a decade. Doubtless, their actuaries are pressing the fund asset managers to take action to close the ever-yawning hole in their balance sheet.

    The pension funds have only so many choices, none of them good. Alternative one: they can continue to invest in things that are investment grade. For the most part, pension funds have done this year after year after year. And with each passing year the hole in their balance sheet has gotten larger and larger. They can only hope that eventually the situation will not merely normalize but reach the point that for several years they can earn an investment grade return north of ten percent. Since the chance of this is rather remote, it is virtually certain that the funds will eventually have to slash the benefits paid to their retirees.

    Or…they can go further out on the risk curve, purchasing things like corporate junk bonds or (as in this case) EM debt. Yes, the “investment” may crash and burn; but at least now there is a chance (however remote) that they can make the black hole on their balance sheet disappear.

    And this is not just their worry. If (as seems likely) a number of pension funds fail, we are looking at a multi-trillion dollar problem. This would be akin to having an elephant die on your doorstep. Almost certainly, Congress would vote to bail them out. If you think we have a budget deficit problem now, just wait till that happens.

    That is why we would do well to get ahead of the curve by supporting the Fed’s program to aggressively raise rates. That would provide the pension funds with a measure of relief. Will it be enough to save the pension funds? Possibly not, but at least the crisis would not be quite so severe when the day of reckoning comes.

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