Our good friend, multi-time Investor Summit at Sea™ faculty member (who’s back again for 2020!) … and greatest-selling financial author in history …
Robert Kiyosaki thinks pensions are the greatest threat facing the financial world today.
Of course, it’s not like pension problems are breaking news. The whole crisis has been unfolding for a decade as more of a slow-motion train wreck.
But over the last few years, the looming disaster is getting hard to ignore …
America’s utterly predictable tsunami of pension problems
– The Washington Post, 2/22/17
Pension Fund Problems Worsen in 43 States
– Bloomberg, 6/30/17
States have a $1.4 trillion pension problem
– CNN Money, 4/12/2018
The Pension Hole for U.S. Cities and States is the Size of Germany’s Economy
– The Wall Street Journal, July 30, 2018
“Many retirement funds could face insolvency unless governments increase taxes, divert funds, or persuade workers to relinquish money they are owed.”
And it’s not just government pensions. Some of the biggest corporations are also struggling under the weight of their pension burdens …
GE’s $31 billion pension nightmare
– CNN Business, January 19, 2018
Here Are 14 Companies Getting Crushed By Pension Costs
– Business Insider, 8/15/2012
You get the idea. Huge storm clouds have been forming for quite a while … in both the public and private sectors.
In an election year, you’d expect to hear some chatter about it. But we’re guessing you won’t because there’s no politically palatable solution.
Of course, ignoring the problem won’t make it go away.
That’s why Kiyosaki is shining light on it. You can’t prepare for or profit from a problem you don’t or won’t see.
So this is a situation we’ve been watching more closely of late. And clues in the news tell us pension problems pose a threat to real estate investors.
Desperate politicians have already proposed funding their shortfalls with property taxes and cuts to benefits for pensioners … some of whom could be YOUR tenants.
Meanwhile, major corporations like General Electric and United Airlines have already cut their pension benefits.
Of course, the flip side of bad news is GOOD NEWS …
Pension problems also create opportunities for real estate investors.
We think pension managers will eventually concede that for a chance to save their funds from the Federal Reserve’s war on yields …
… they’re going to need to get REAL … real fast.
Pension fund managers will need to funnel more money away from Wall Street and into Main Street.
Think of all the reasons Main Street investors LOVE real estate …
… reasonably consistently achievable double-digit total returns …
… inflation-hedged yields much higher than bonds and without the counter-party-risk …
… assets which aren’t practical as gambling tokens in the Wall Street casinos, and therefore much less volatile in terms of yields and principal value.
We know. You’re already convinced real estate is awesome. And you may be wondering why everyone doesn’t invest in real estate.
But don’t under-estimate the seductive allure of Wall Street marketing and the pervasive political pressure to promote paper assets.
Remember, an argument can be made that government and Wall Street sometimes work together to the detriment of Main Street.
But when Main Street gets mad … it’s every politician and pension manager for himself.
So when poking around the crevices of the internet looking for credible clues …
… and being mindful that things NOT being talked about in well-publicized political discourse is probably more worth paying attention to …
… and we came across a couple of interesting articles …
CalPERS gets candid about ‘critical’ decade ahead
– Capitol Weekly, 8/27/19
Yes, we realize this article isn’t “fresh” … but it’s still relevant today. After all, they’re talking about the “decade ahead” … and again, this is a slow-motion train wreck.
Here’s a notable excerpt …
Quoting a letter written to CalPERS by a third-party consulting company brought in to help figure out what to do …
“ ‘The financial world is changing, and we must change with it,’ said the letter. ‘What we’ve done over the last 20 years won’t take us where we need to go in the future. New thinking and innovation are in order.’ ”
Of course, who knows what they mean by that. “Change”, “new thinking”, and “innovation” are all buzz words that lack meaning apart from a suggestion or context.
But one thing is perhaps becoming clear to the pension managers … Wall Street’s not the answer …
“ Meanwhile, a line [the] letter is a reminder that CalPERS remains at the mercy of the market, as when the stock market crash and recession struck a decade ago: ‘The value of the CalPERS fund fell 24 percent in a single fiscal year, to about $180 billion.’ ”
So it’s against this backdrop that we found the second, more recent, article noteworthy …
Sacramento County launches tender for alternative assets consultant
– Institutional Real Estate, 2/11/20
“The $10 billion Sacramento County (Calif.) Employees’ Retirement System (SCERS) is seeking a consultant for its alternative assets portfolio …”
“The alternative assets consultant works with the pension fund’s investment staff to help develop and maintain strategic plans for the system’s absolute return, private equity, private credit, real assets, and real estate investments.”
Pension problems are rampant in governments … from nations to states to counties and municipalities, as well as corporations all around the world.
As pension managers realize there’s opportunity to grow absolute returns through private placement and real estate …
… it opens up a potential floodgate of money into Main Street opportunities.
Of course, if you’re just a Mom & Pop Main Street investor … or even a fairly successful real estate syndicator doing multi-million-dollar deals …
… you may wonder how YOU can get in on the action.
Like Opportunity Zones, pensions pointing their portfolios at specific markets and niches have the potential to provide a tailwind to EVERYONE already there … or going along for the ride.
So pay attention to pensions … not just for their potential to torpedo the financial system …
… but for the opportunities created as they act out on “new thinking and innovation”.
Lastly, keep in mind that like Fannie Mae and Freddie Mac back in 2008, and the FDIC today …
… the Pension Guaranty Benefit Corporation is a horribly underfunded quasi-government enterprise backing TRILLIONS in potentially failing pensions.
If a substantial number of pensions fail (a VERY real possibility) …
… it’s all but certain the Federal Reserve will need to step in to paper over the mess with trillions in freshly printed dollars.
This weakens the dollar and among the biggest winners are borrowers and owners of real assets.
This makes real estate investors who use mortgages double winners.
So while you may not be able to calm the stormy seas …
… you can choose a boat that’s seaworthy and equipped to sail faster when the winds of change (and a falling dollar) blowhard.
Until next time … good investing!