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Pension Musings Squared



In early June the State of Illinois issued $10 billion of 25 and 30 year bonds in order to shore up its unfunded pension liability, estimated at $35 billion. This liability could be actually much larger if one were to assume a more conservative rate of return on their assets than the 8.5% they are currently using. Of the $10 billion in proceeds, approximately $2 billion went immediately to pay off 2003 and 2004 obligations. Of the $8 billion left, it is believed (by my contacts in Illinois) that around $2 billion found its way directly into the stock market. If this is not leverage, I don't know what is.

So in response to my friend Scott Reamer's question, even though I agree with everything he is saying (in spades) about corporate pension funds fueling the rally, let's not forget our friends from the public side. The real interesting thing is that they are getting other people to take the risk for them. It's one big party and all are invited.

No positions in stocks mentioned.

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