Government to take a two year 'pension holiday': SBP

[KingKane]

Seems prima facie like a fairly imprudent decision. Any major investment like this, once taken off the boil, will be very difficult to heat back up again. I would argue that it is alot easier to continue a 1 billion euro spend than to commit to a new one or a resurrection of one.

Surely, the pension fund as managed by the NTMA can be invested in areas other than the stock market. That's the point of a long term managed fund, its not supposed to be 100% in one area, and the government is talking about not putting any money in, not that they want to put in cash and direct it to areas outside the stock market. Hell, they could be trading oil or precious metals.

[Catalpa]

It can only be that the Government has reached the conclusion that the Stock Markets are banjaxed for the next couple of years at least and there is no point throwing good money after bad...

I think it is prudent decision making myself.

Then why don't they start selling short ?

Running away and doing nothing is making an investment decision in and of itself.

cYp

Well they've been selling us short for years. But that's another story....

But things are so haywire now that while money may be made the probabilities are that more would be lost than would be gained in the immediate future.

[factual]

It can only be that the Government has reached the conclusion that the Stock Markets are banjaxed for the next couple of years at least and there is no point throwing good money after bad...

I think it is prudent decision making myself.

Then why don't they start selling short ?

Running away and doing nothing is making an investment decision in and of itself.

cYp

Do you think governments ought to sell short?

[cyberianpan]

Do you think governments ought to sell short?

A pension fund is an investment fund, it ought to be up to the investment managers to make decisions as they wish.

Now we'd note that most regular funds are prohibited from short selling and that in general selling short is a "short term" activity.

I certainly would find it very peculiar (for investment reasons) was a pension fund to be shorting stocks a lot. Obviously also in the long term if many such funds were shorting stocks there'd be a question hanging over the markets. Though I'd discount the public policy notion that "governments should never go near short selling as it undermines confidence" baloney.

My earlier comment was more rhetorical: if they government really believes the markets are falling why don't they go short ?

The answer to this is: government really can't say re markets, and actually the government has no money to spare anymore because they let current spending go out of control during the boom.

cYp

[droghedasouth]

Even by the standard of FF ministers of finance, this has to be the dumbest decision since Haughey had Gene Fitzgerald fiddling the books for him during his GUBU government .

Long term investment strategy is now to wait until prices go up again before buying stock.

Wonderful example to every self employed person - dont invest anything for a few years.

Fund managers from other soverereign nation funds must be gobsmacked.

[hiker]

There is also the basic math to contend with.

A loan will cost anything between 5% and 8% per annum.

Stock Market returns will be between -5% and +3% per annum.(maybe, if there is a turn around) for the next 3-5 years.

This is a no-brainer. Its too obvious. there is not a hope in hell of making money in this environment.
You will actally save money by not borrowing and stop buying shares for about 2 years. When the Bull returns then you borrow to invest but not beforehand.
The state does not have to make a massive killing like the hedge funds etc. they just need to make a decent return over the long term.

[eurocrat]

If they money saved over the next two years is used to fund capital projects, its possible that is may produce a great rate of return than the stock market currently can.

For example Metro North (which I am no fan off btw) could be funded through this. It may be a safer investment and more beneficial in the long term.

[cyberianpan]

Even by the standard of FF ministers of finance, this has to be the dumbest decision since Haughey had Gene Fitzgerald fiddling the books for him during his GUBU government .

Long term investment strategy is now to wait until prices go up again before buying stock.

And they're spinning it as

"We's been curfulle of dem dere dangerous stock markets"

Gombeenism of the highest order, they might as well make Healey Rae minister for Finance.

What they ought to say: "We screwed up, the country is already bankrupt"

cYp

[droghedasouth]

There is also the basic math to contend with.

A loan will cost anything between 5% and 8% per annum.

Stock Market returns will be between -5% and +3% per annum.(maybe, if there is a turn around) for the next 3-5 years.

This is a no-brainer. Its too obvious. there is not a hope in hell of making money in this environment.
You will actally save money by not borrowing and stop buying shares for about 2 years. When the Bull returns then you borrow to invest but not beforehand.
The state does not have to make a massive killing like the hedge funds etc. they just need to make a decent return over the long term.

Well let's not be so sure where the no brainer lies.

Making a decent return over the long term is got by investing continuously and above all not panicking when prices are low.
So what if the returns are low for a year or two.
If stock is bought when the markets are low, the long term return will be better.

[droghedasouth]

If they money saved over the next two years is used to fund capital projects, its possible that is may produce a great rate of return than the stock market currently can.

For example Metro North (which I am no fan off btw) could be funded through this. It may be a safer investment and more beneficial in the long term.

Funding Metro North is not the problem.
The cost-benefits of this project are likely to be very poor, not that that ever stopped FF wasting our money.

Now if you want a worthwhile infrastructure project, go for the rail interconnector - especially as part of the Guiness brewerey will be redeveloped.