The major news items in the financial press concerns the potential financial disaster with government unions and defined benefit plans as fiscal malpractice by state and local officials who have created unfunded public employee benefit liabilities of more than $3 trillion. Many private corporations have closed their defined benefit plans and have converted them to defined contribution plans such as 401(k) plans.
Source: The wall Street Journal, Dec 13, 2010 article by Tim Pawlenty republican governor of Minnesota.

Thanks to President Obama Government jobs have become the only “booming Industry” left in our economy. The private sector has lost nearly 8 million jobs since January 2008, while local state and federal govts have added 590,000 to the job total. Public employee unions contributed 91 million dollars in the mid-term elections mostly to democrats. We need to end defined benefit plans for government employees in favor of 401(k) plans. The strategy could save taxpayers trillions of dollars.

I recently attended a Rotary meeting in Fresno . The speakers were from the County of Fresno’s large defined plan. The presentation in regard to the investment portfolio was excellent utilizing Modern Portfolio Theory, Sharp Ratios, standard deviation and other Stat ratios. The problem as I see it is that the assumed rates of return appear to be out of line. The higher the assumed rate of return, the less the contributions can be. For example, Florida,s state pension plan was fully funded in 2010 and now it is at least $28 billion or 22% in the hole. Now short nearly $60 billion, Illinois has barely half of what it needs to cover future pension obligations.
Source: forbes 2/16/2009.

Finally, 4 in 5 public sector workers have lifetime pensions verses 1 in 5 in the private sector. In addition to the pension issue, the other concerns on the public mind is the steep increase in oil and gas prices since Obama took office: oil prices have risen 133% and gas prices have risen 70.4%. At the same time Secretary of the interior Ken Salazar and Energy Secretary Steven Chu continue to prevent the USA from drilling for oil in the Gulf of Alaska.
Source:Tony Adkins, conservative action alerts 3/3/2011.

Drilling for oil in America would reduce oil prices and bring jobs. The USGS has worked with the North Dakota Geological and other experts to study the Bakken formation in N.Dakota and Montana. The leading researcher, James Bartis has stated that America has more oil in the Bakken formation than the entire Middle East. Studies have also indicated that there may be more than a trillion barrels of oil in oil shale, a type of sedimentary rock found in Wyoming, Utah and Colorado’s Western Slope. What are we waiting for?

On another issue, President Obama has become the most pro-abortion president in U.S. history and has promised to veto cuts to abortion provider Planned Parenthood and Senate Democrats led by Harry Reid (D. NV) are demanding full government funding for abortions with our tax dollars.

In regard to Social Security, a blog that I wrote 3/17/05 pointed out that 16 workers were paying into Social Security for every retiree receiving benefits. In 2013, The system could begin deficits. It will begin to spend more on benefits than it brings in taxes. Today, less than 3.3 workers are paying for every retiree. The so-called “lock box” trust funds is a mis-nomer, the dollars that are “deposited” into Social Security are not saved and invested for future retirement benefits. You have no contractual right to benefits. The “Lock Box” is comprised of IOU’s, not cash. Chile, Australia, and Sweden have reformed their retirement systems. In Chile, more than 90% of covered workers participate and can contribute to private accounts that grow tax free. President Clinton’s fiscal 2000 budget explained trust fund balances like this “ They do not consist of economic assets that can be drawn down in the future to fund benefits, instead they are claims on the Treasury that when redeemed will have to be funded by raising taxes, borrowing from the public or reducing benefits or other expenditures” Permitting American workers to build assets with part of their payroll taxes could be a positive way of getting Social Security to be more viable in the future. The liberal press continues to convince the uneducated public that in fact the Social Security “Trust Funds” are funded and will provide benefits to them.

Governor Brown of California has many ideas on how to reduce state spending and reduce the budget deficit. What about the option of increasing revenues instead of taxes? Increasing economic activity can increase tax revenues. A good example is North Dakota with an unemployment rate of 3.80% and an estimated 4.3 billion barrels of oil, North Dakota is drilling full throttle. The state is 4th in oil production, behind Texas and California. Oil is driving a state surplus and has put an extra billion dollars into the state coffers. Take notice California! Hi-Tech firms are moving into the state. Urban renewal is alive. North Dakota is a right to work state, which is a plus to new employers and manufacturing and taxes are moderate. Contrast the business environment with what we have in California and the Central Valley. California has a lot To learn from N. Dakota. Maybe some of the elites from our state should take a trip and Learn how to reduce its unemployment and increase economic activity. For investors taking tactical approaches to the stock and bond markets, correctly selecting The outperforming asset class, either bonds or equities; a 66% correct allocation is needed To achieve the same risk advised performance as a static portfolio with the same equity Allocation.Findings by Sharpe(1975) note that a portfolio manager should be right at Least 7 times out of ten before engaging in market timing. Despite the appeal of a Tactical allocation approach, a static allocation is likely to lead to a higher risk Adverse performance for the vast majority of investors.( Journal of Financial Planning Feb 2011 volume 24, page 54) The day trading mania that was prevalent during the Late 1990’s is back and a new group of traders will probably get demolished in the process. The ‘Buy and Hold” strategy is not dead yet.

Gary E. Marsella

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