Thursday, April 21, 2016


It was reported today that jobless claims were at their lowest level in 43 years.  That should relate to greatly improved economic activity and higher GDP estimates but that doesn't appear to be the case.  We have spoken about this anomaly before but on the number alone bonds sold off as did the stock market as a June rate hike is suddenly back in play after being all but buried over the past two weeks. I don't get it.

Sr. Dragi concluded his little get-together this afternoon as well stating that there wasn't much new to talk about, although things were looking slightly better (emphasis on "slightly") and that the ECB remained to step in once again to provide the necessary stimulus to keep (get?) things moving.  Once again, hope springs eternal Over Here but not Over There...or at least hope is somewhat muted.  I don't get that either.

Japan...well, there hasn't been much good to say about Japan for a while but even in the face of Mr. Abe's negative interest rate policy seemingly having the opposite effect from that which was intended, the Japanese stated that they have every intention to stay the course.  Ditto about getting that.

And China...well, who knows.  The 7% GDP gain announced the other day was rubbish and everyone knew it, with, at a minimum, all sorts of financial toing and frowing between the mainland and Hong Kong messing with the numbers to a fair-thee-well in the face of stony, expressionist looks from the Chinese.  They are inscrutable on the best of days so I simply don't try any more.

If one thing is consistent, however, it is the consistent belief that interest rates aren't going anywhere fast, anywhere except for perhaps a 1/4% move by the Fed.  Whoopy-damn-do.  What is going up is the absolute level of debt around the world even in places where the deficit has been cut as in the EU and the U.S.A.  We stand together at about $30 trillion of official debt if anyone is counting; at least double that if one looks at the private sector.  Now little Paulie would tell you not to worry because that will never have to be repaid and it can be refinanced forever.  Funny, dare I say that I don't get that.

Anyway, whilst musing I decided to call No. Two Son who sits in an internal think tank at a very big insurance company.  He gets paid pretty well for musing.

"Big win on Met Life, eh."

"Yep.  Goes the other was it's a killer.  But they'll be back.  Nice to be one-up, though"

'Killer, eh?"

"Yep.  Gives us some room to maneuver without pre-clearing everything we do."


"Biggest thing?  How we invest our capital...or where to be quite honest.  This is a business where you a forced to make guesses a long ways out because that's where your liabilities are...and you assets for that matter.  Return on the latter is everything.  The guess, to make it real simple is what the return is going to be because everything is priced...and I mean pretty much of that."

"And, oh sage...?"

"And right now we don't have much of a clue except that the past...well, we got it all wrong but we got bailed out because we got a couple of things really right but that was luck to be honest.  Simple stuff, like how do we fund MY pension."

"You still have a defined benefits plan!"

"Of course. We're an insurance company.  Worked out OK for you.  But for those who have...ah...a bit more time at stake, that may not be the case, either here or other places.  Not too much written about it but it keeps us up a bit at night.  Pops, this business is all about using past history to work for you but nobody has seen anything like this before and nobody can see how it ends...yet.  In fact one scenario has it not ending.  Why? Simply because if we "normalize" nobody can pay the debt service.    They don't WANT and can't have it least that's one scenario.  Of course we're different; we have to earn our way throughout the years to pay certain and huge amounts in the future...obligations that were assumed with rates of return that were realistic at the time...not like Chicago pensions which IIRs picked to make the numbers add up...and which, if some guys are right, are no longer realistic and will never be so again."


"Hell, you know that.  You faced it.  If you can't make the return with your acceptable risk profile either find another risk or change your profile...or stop writing business which is probably not an option.  Then again I have about 30 years to find an answer.  I hope the gang that thought this one up gives up a little help along the way."

"Don't count on it."

"We're not.  We just want to be left enough alone so we have a shot.  It's not like we're unregulated as is and we have some time.  Of course you used to say that any deal you can't do in three weeks isn't worth doing."

"Make it four weeks for this one."

"You going to help?"

"Nah, I'm a muse.  I just write about things now."

"Go muse."

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