Monday, June 15, 2015

Better Corporate Governance Coming?

From the latest Fortune:

"Traditional pensions are dwindling. Back when almost every big company maintained a pension fund that it parceled out to asset managers, those managers recoiled from getting involved in companies’ affairs or voting their shares against management’s wishes (after all, it could cost them business). Now old-style pension plans are mostly gone, replaced by defined-contribution plans in which employees direct their own investments. Asset managers are unshackled to say what they want and vote as they wish."
One other observation about this same article.

Having $3 trillion of assets under management puts you in the top handful of asset management firms. Owning $1 trillion of treasury debt (like China or Japan) makes you one of the largest holders. Who, then, is going to be buying the $3 trillion a year that federal, state, and municipal governments are planning to borrow to cover their operational and pension shortfalls??

I see this sparking a bond bear market, which leads automatically to a bear market in other assets, because all assets are priced off of bond yields.


Taylor Conant said...

Is the bond bear good or bad for the US dollar?

CP said...

Good question - I think by process of elimination you want to be in cash, since the bear market has bonds and stocks both doing poorly.

If there's inflation during this process, and it's easy to see how there could be, the loss of purchasing power would probably be mild in comparison to the loss of value of stocks and bonds.

Also, t-bills have historically yielded about the same as the inflation rate with a lag, so if you just keep it in t-bills you'd reduce the loss of purchasing power, but still lose some because you're taxed on the nominal part of the interest.