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California Pension Debt Trillion+

The major averages begin the week on better than expected economic data with the ISM or Institute of Supply Managers non-manufacturing or services index gaining a better than expected 2.4 points to 57.2 a 13-month high on strength in business activity and employment, new orders slipped again.

Like so many other significant events this year, Italy’s lurch towards another banking crisis and exit from the European union following the weekends referendum turns out to be another bullish buying opportunity, go figure.

Black Knight released its October Mortgage Monitor showing another decline in mortgage delinquency as they fell to just 4.35% of all mortgages, those in foreclosure slipped to just .99% so total delinquent and in foreclosure is 5.34% as rising property prices continue to produce the expected results. That said large jumps in delinquency were seen in the southern and Atlantic seaboard states from New York to Florida, one month doesn’t make a trend but it is worth noting just the same.

I have repeatedly highlighted the fiction that is pension fund assumed rates of return and the underfunding issues exacerbated by the Fed’s zero interest rate policies. Recently the Stanford Institute for Economic Policy Research released an updated California public pension funding analysis showing that underfunding levels have exploded in the last 8-years since the financial crisis began. Highlights from the report show total California underfunding levels ballooning 157% since 2008. Total pension debt exceeded a trillion Dollars in 2015 or more than $93,000 per household an increase of $15,300 or 19.7% over the figure seen in 2014. Compared to other states and California’s $93,000 per household pension debt is second only to Alaska’s $110,000 per household. With assumed rates of investment return north of 7% in many cases persisting these underfunding levels are all but guaranteed to expand further.


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