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Economic Question

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cedardell

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Now that we have all the economists blazing away, I have a question that's been bugging me.Was watching the news yesterday and saw a speel on GM's impending bankruptcy. They show plant closings and lost jobs, lost pension and retirement funds. They interviewed workers who were walking out of the plant for the last time. They were all bitter that they had worked their whole lives for a company and were building for their retirement and now they are left out in the cold, zippo, zilch. How to find another job that probably doesn't exist. Seems to me that back in the sixties Bobby Kennedy and the Attorny General following him prosecuted Jimmy Hoffa and Sam Giancana for stealing from the teamster pension funds. I thought laws were passed to ensure the integrity of these funds. Maybe that's why Bobby Kennedy was murderd. So what's happened to the law that protects these funds that are garnished from wages of workers from corporate marauding? Media made a big deal that this was going to have a huge effect on our economy. GM happened to be a multinational company. Does this mean that workers in other countries get screwed the same as workers in the US? If so I would like to warn Canadians to watch your rears, pass laws regulating the multinational companies, so if they don't protect your workers, your govt will. I was thinking mainly of our Canadian friends, maybe all the African slaves they hauled in don't count. Sorry I apologize.
 

agman

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reader (the Second) said:
cedardell said:
Now that we have all the economists blazing away, I have a question that's been bugging me.Was watching the news yesterday and saw a speel on GM's impending bankruptcy. They show plant closings and lost jobs, lost pension and retirement funds. They interviewed workers who were walking out of the plant for the last time. They were all bitter that they had worked their whole lives for a company and were building for their retirement and now they are left out in the cold, zippo, zilch. How to find another job that probably doesn't exist. Seems to me that back in the sixties Bobby Kennedy and the Attorny General following him prosecuted Jimmy Hoffa and Sam Giancana for stealing from the teamster pension funds. I thought laws were passed to ensure the integrity of these funds. Maybe that's why Bobby Kennedy was murderd. So what's happened to the law that protects these funds that are garnished from wages of workers from corporate marauding? Media made a big deal that this was going to have a huge effect on our economy. GM happened to be a multinational company. Does this mean that workers in other countries get screwed the same as workers in the US? If so I would like to warn Canadians to watch your rears, pass laws regulating the multinational companies, so if they don't protect your workers, your govt will. I was thinking mainly of our Canadian friends, maybe all the African slaves they hauled in don't count. Sorry I apologize.

I know that pension programs in a broad sector of business have been in trouble for a number of years. I know that in some cases it was mismanagement and as with social security, the funds for workers' retirement were used along the way by the corporation. However given the hit on college endowments from the stock market crash of 2000, I have to guess that just like colleges and individual investors, that pensions were invested in the dot-com boom by their fund managers and went bust with them. I think that the US needs to rethink social security and pensions -- I doubt that many companies offer pensions anymore although of course the GOVERNMENT does :x and given the flucuations of the stock market, workers' money should be invested extremely conservatively. That is why I object to Bush's plan which will make Wall Street a killing and prop up the economy but will mean that some of us will end up with bupkis when we go to retire.

I believe the law allows the for use of funds that are in excess of funded liability. During the stock market boom many pensions funds were over funded due to strong stock market gains. The bubble that burst cost pensions dearly.

The bigger problem that I see is corportations and politicians continuously making excess commitments that are almost impossible to achieve. In some cases this is forced by union action. In other cases it if simply too many brains and too little common sense.
 

Mike

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Agman:"The bigger problem that I see is corportations and politicians continuously making excess commitments that are almost impossible to achieve. In some cases this is forced by union action. In other cases it if simply too many brains and too little common sense."

Remember the United Parcel Service (UPS) strike a few years ago? It was all about the Teamsters Union wanting to get their hands on the "retirement fund" that UPS had in escrow. Knowing the track record of the Teamsters, we shall see if one day this fund is looted by who!
 

Sandhusker

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Reader, "I doubt that many companies offer pensions anymore although of course the GOVERNMENT does and given the flucuations of the stock market, workers' money should be invested extremely conservatively. That is why I object to Bush's plan which will make Wall Street a killing and prop up the economy but will mean that some of us will end up with bupkis when we go to retire."

I'm going to disagree with you about investing extremely conservatively. In my brokering days, I told people you should invest the same way you get dressed. If it's cold out, you put on a hat and a coat - if it's hot out you put on shorts and a t-shirt. You dress in the manner that experience has taught you is the best way to meet your ends. If it is cold, the hat and coat have been shown to be the best way to stay warm. The light clothing is proven to be the best defense for hot weather. Similarily, the same goes for investing, but substitute time for temperature.

The stock market has proven to be the best place to put long term money (10 years or more), bonds for shorter term, conservative (CDs, Govt. bonds, money market) for short term. If you go back and pick ANY year and go out 10 years, the stock market will have outperformed conservative investments 9 out of 10 times. If you pick ANY year and go out 20 years, the stock market will have outperformed conservative investments EVERY time, by a large margin. The conservative investments generally just match inflation. You take out taxes, and you've actually lost purchasing power.

I agree that one is foolish to put all your money in the stock market if you will be needing it within 10 years, but you are just as foolish putting the money you don't need for 20 or more years in conservative investments.
 

SASH

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Wow, I actually agree with you on that Sandhusker. I also spent some time as a broker. The stock market historically has always had higher returns over time than any fixed income securities. With interest rates being so low and taxes being what they are right now, net returns aren't even meeting the rate of inflation at some times let alone actually growing into some sort of retirement fund. Like anything, its all about controlling risk. The message that I always preached was invest in quality. Balance the sectors that you are invested in and pick the best companies in that sector to invest in. Although you may occasionally run into a Nortel or an Enron, this balanced approach will yield much better than fixed income in the long term while moderating your risk. Many companies' pension funds are held by companies that specialize in investing, because GM makes a large percentage of its money through its finance company (GMAC) , it held the pensions itself. The problem with defined benefit plans is that they are based on a certain amount of return annually to keep them running. If you don't make that level of return, they will collapse and that seems to be what is happening more and more.
 

Sandhusker

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I'm all for Bush's plan of allowing some degree of personal control over funds. Actually, I'd love it if they would allow people to completely opt out of the deal. I'd do it today. The rate of return on funds paid into social sec is lower than investing in CDs.

Sash is right, the key is investing in quality and diversifying into different sectors consistant with your goals. I'll toss in there periodic rebalancing of your portfolio. This forces you to buy low and sell high while maintaining a smart balance. Some folks say rebalance every year, some every quarter.... I say rebalancing on a time schedule makes no sense. A lot can happen in a month or things can stagnate for a couple of years. The 200 day moving average works good on funds, the 50 on stocks.
 

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