Saturday, December 22, 2007

Calpers Jumps the Shark

Hey guys! I just had this really great idea. You know how we've got like the largest investment portfolio in like you know the entire world? Well I thought we need to have more real estate and neato stuff like commodities speculation and things. So, waddaya think guys?

WaPo has their version;
Calif. Pension Fund Shifts Away From Stocks, Bonds
By Michael Liedtke
Associated Press
Sunday, December 23, 2007; Page F02
SAN FRANCISCO -- The California Public Employees' Retirement System will sell more than $20 billion in stocks and bonds as the largest U.S. public pension fund aims for higher returns from venture capital, commodities, real estate and several other investment options.
and:
About 10 percent of Calpers's portfolio will consist of real estate investments, up from 8 percent. Hitting the target will require additional real estate investments of about $4 billion.

There actually may be a little method in this madness. If these guys at Calpers have anything better than 20/200 vision they can see the shitstorm that's comin' and making the fund less liquid and more entangled could keep the sharks from taking too big a bit of their pie. Truth told Calpers is about to get a whole freakin' lot of IOUs as every available loose dollar is poured into the Social Services rathole that is California socialism.

14 comments:

Lou Minatti said...

Foist.

Lou Minatti said...

If Calpers loses money they can always tap you, Rob. You're just a taxpayer. From their standpoint, they can invest in Beanie Babies or tiny gold mining companies with no assets. It's all good.

In Texas, those that run the state pensions describe them as being in "relatively decent shape" and "largely intact."

http://www.chron.com/disp/story.mpl/business/5389005.html
http://www.chron.com/disp/story.mpl/headline/biz/5380915.html

Those descriptions are so wonderfully vague.

Sounds like Calpers is throwing a Hail Mary. Doubling Down. I can't think of any other cliches.

Rob Dawg said...

Hey Lou.
Just kickin' back with a bottle of Hofbrau Original and watchin' dvds with the kids up in the snowy mountains of Southern California. Stealing wi-fi from people who thinks 64bits is safe.
I still think the Colonel's Roadmaster on US-101 is north of Gaviota.

Rob Dawg said...

i'm getting an on the ground feeling that even the politicians are sensing that there is no tax hope at all. we are hemoraging productive businesses and people. and for every two college graduate parent family that packs up for Austin or Longmont two didn't complete high school one or two parent families move in.
it is different this time. 9.3% income tax and 8.25% sales tax and some unbelievable excuses for 'fees' and understand the voting segment of what remains here is pissed at the current burden nevermind in any mood for more going into a reach whiplash recession.

Lou Minatti said...

Thanks, Rob, for the Gaviota tip. I am going to update the photo album for my wife's dad.

Here are some panaceas to California's budget woes:

Increase the cigarette tax.
Expansion of the lottery.
More casinos.
Higher gas taxes, "for the environment."
Titty bar taxes.*
Toll roads.

I suspect the shortfall will be covered by an increase in personal and corporate income taxes, plus a mixture of the above. They may even try for legalization and taxation of marijuana, considering the scope of the crisis. Humboldt County could be the next goldmine for the revenuers.

*They are actually trying this in Texas.

Max said...

Just wait until the retirement wave hits. The average age of a CA state worker is somewhere between 40 and 50, and upper management is even older. Jerry's kids have been very effective at maintaining job security while making it difficult to hire younger workers. With the hiring and salary freeze that is likely to happen, many of these older workers will retire and not be replaced. The day when CalPERS sees net withdrawals is almost upon us.

Of course, state law requires the taxpayer to make CalPERS whole no matter what. Soon, the average wage slave not lucky enough to have won the state job lottery will begin to wonder why his taxes are being increased to pay for some state workers sweet retirement.

OTOH, so long as the bond market is willing to lend, CA is willing to borrow. There might still be enough room below the debt limit to throw a few bond issues together and pass the buck on to the next fools willing to take elected office. Ain't term limits grand?

sk said...

The retirement bills are already due IMO. I remember in Simi Valley, stopping off regularly at the biker bar at the bottom of hmm, Santa Susanna Pass Rd/end of Box Canyon - the bar changed hands in 2001 I think and I talked to the new landlord many times - one odd conversation was that his happy hour crowd, music and all was an odd lot, as per me - not very hip, not at all like the Elephant bar for example but he drew customers - and he said - most of them are RETIRED ! WTF ! they were just a little older than me - mostly cops and prison officers !

I do not begrudge them their due - they made a contract ! but I'm gonna work mighty hard to enjoy Cali and yet ensure I don't pay for that contract.

-K

Max said...

but I'm gonna work mighty hard to enjoy Cali and yet ensure I don't pay for that contract.

Therein lies the rub. The Republicans have done an excellent job of making sure wealth stays concentrated in the hands of a few, and the Democrats have done an excellent job of making sure the poor majority of the voting public doesn't pay any real taxes. Since all meaningful law in California is enacted through majority vote of the people (and not by our elected representatives), we're guaranteed to have spending increases without tax revenue to back it.

I'm afraid this state will never voluntarily turn off this reckless path until external circumstances force a change. The last time I checked, a Federal receivership can void contracts in order to force payment to creditors. I wonder how those "sweet" pensions will hold up when the state goes into default.

Bilgeman said...

Rob:

I can see the reason that CALPERS would buy real estate to cover it's vig.

1) Land is still land, and will be land long after the Flipperz and Investorz crawl away and get on the Next Big Thing.

2) It stands to reason that most people who will qualify for a CALPERS pension actually live in California and presumably own homes there. By buying real estate, CALPERS would be subsidizing and possibly stabilizing that market, thereby keeping a lot of future CALPERS pensioners from bankruptcy.

When you think about it, it makes a whole lot more sense for a state employee pension fund to buy the state's land than to park it's money in the Guangzhou Province Dishwasher-safe Rubber Sex Toy Manufacturing Company.

As the wife is a member of the VaJanYa State Pension Fund, I would gladly take title to a wee percentage of an operating coal mine on what used to be Walton Mountain.

Edgar said...

Undoubtedly those who exodus California will change wherever they move to in order to make it more like California. The sheer genius of it...

As far as pensions, look o far than your old friend, pension fund manager. He knows the secret handshake, and has lots of rich buddies to feed. I am glad the pensions are getting wiped out by crooked and / or incompetent pension fund managers. I don't have a pension, why should anyone else get one?

Rob Dawg said...

Jerry's kids is right. When the first round of staff reductions hits every level and I mean every level there's going to be a shock to the system that will all but cripple any remaining expertise in the system. They will foolishly offer an overgenerous RIF and lose too many good people, the ones with corporate memory or acquired skill sets. And they are going to cost. So while they are collecting obscene benefits some will be consulted back in just to keep the gears turning and some will leave the state exacerbating our already massive imbalance of cash flows with the other 49.

If you've followed my early warnings about CA borrowing you should be aware that very little is AAA when stripped of insurance. My guess is less than 1/3rd. Some of this stuff is BBB- already on the market like the Poway issue mentioned previously. CA is about to experience an interesting confluence of events. Double tax free and really high rates on their debt that is still acceptable and some deductible losses on older issues trading below par and these puppies are gonna collective screw the economy even more. I knoe I'm watching to start collecting 12-14% equivalent yields rather than put my money to work in some taxable venture. so, no taxes from me, no money in the bank for lending and a huge budget expense to boot. and face it no matter how bad things get the entire planet cannot allow its 7th largest economy to renege. We've seen the global fallout from tiny banana nations even hinting at that.

Things get wierd in the world of muni retirement. IIRC the Chief in Fillmore was a triple dipped collecting his salary and two full pensions. there is begrudging to go around aplenty.

the problem with a courts solution is twofold. First the most likely tests are going to be those who think they have a Constitutional protection of their piece of the pie; teachers, prison guards. Second there's going to be some lifetime appointed judge who thinks it would be a good idea to mess with Prop 13. The mere idea would send what few businesses remain packing. They honestly wouldn't stay to see the result. Oh, and it would deal a death blow to residential real estate until resolved.

As I said in the post Calpers may be trying to get less liquid to protect itself from predation. All that real estate at low fire sale prices won't be an attractive meal for the ravenous Legislature.

Interesting times. Deficit still stands at $14.5b offical, $16b whisper number.

Next indicator will be firt week of Jan sales tax revenue for Dec.

serinitis said...

A lot depends on the rate at which they move their money. If they start selling now and increasing their real estate two years from now, it could be a very good investment.

Calpers has had some very high profile real estate failures in Sacramento, so I am curious how their overall Real Estate investments have gone.

Venture Capital, Real Estate, Commodities. It looks to me like they are preparing for inflation.

w said...

Rob, what do you mean by "I know I'm watching to start collecting 12-14% equivalent yields rather than put my money to work in some taxable venture. so, no taxes from me, no money in the bank for lending and a huge budget expense to boot."

By the way, I wonder who decided it would be a really good time to open a speed boat store in Fillmore right now. I bet they don't make it a year.

WillFish4food said...

Thank God I retired and started a business....I don't know how long my pers will be around. I think charter schools and private prisons are in our futures. Good luck if you are trying to hold out for your retirement. Small business doesn't want to pay it most are leaving the state to make room for welfare recipients.