Alabama Retirement Systems CEO on the economy

[trof]

Here's an email I received yesterday.

June 23, 2009
Dr. David Bronner, CEO of the Alabama Retirement Systems, the 43rd largest investment fund in America, spoke at the Tuscaloosa Rotary Club here yesterday. He is one of the most respected fund controllers in the United States today by his peers.

Bronner had the following to say:

1) Next month, July, California hits the wall financially, that will send a ripple effect across the US economy, AND over the next two years one state after the other will fall to it's knees financially as the federal government stimulus package ends by 2011. It has helped various states at different levels comparative to their economic condition. He says the stimulus package is what's been keeping the states alive for now...except for California which was in such terrible shape the stimulus package wasn't enough to really help them. "They go first" He said Alabama would hit the wall in February of 2011, late in the game as Alabama is in better shape than other states. Bronner says Alabama might dodge the bullet if the economy revives enough by then. But he doesn't really think things will improve enough by then to avoid a crisis..."It will be the largest economic crisis in the history of the State of Alabama" Bronner says Alabama will experience such significant shortfalls by 2011 that taxes will have to be raised substantially to avoid collapse... probably on property. And that practically all states will face a similar fate.

2) Within 120 to 150 days from now the commercial real estate market nationally begins to collapse as stores, malls, and shopping strips, and industrial plant have enough closures (store and plant) and loss of rental revenue to make them unable to pay their mortgages. They will start going into foreclosure unable to pay their mortgages in a significant way at that time creating a second wave of economic disaster starting three to four months from now.

3) Unless oil stays above $70 a barrel Russian and Mexican economics will begin to unravel as countries ("socio-economic collapse) economies require that much from oil to have an adequate revenue stream to feed their people and economies. AND, the only other big revenue stream for Mexico is illegal drugs sold in the US...so their economy will intensify their focus on selling drugs in America as a result in order to survive if oil doesn't stay above $70...he said $90 would be better for them.

4) The US economy (according to Bronner) is today like a patient in the emergency room in the process of having a heart attack. He said people tend to think of it as being in the hospital for cancer or chronic disease. Without the huge Bush stimulus, and then the huge Obama stimulus, the economy would have already flat lined...(i.e. we'd be experiencing a Great Depression style economic collapse heading toward 25% unemployment or so as the tumble would have continued and intensified at an increasing rate, with the stock market hitting around 2,000) Bronner said the depth of the crisis was greater than ANYONE realized and agrees today, after learning the extent of the crisis, that the federal government simply had to start "shoveling" money at it to prevent a true and complete collapse of our economy. He said he, at first, was mad at this shoveling of money until he learned the truth about the amount of money necessary to prevent a total collapse which he believes would have happened.

5) Inflation will not arrive for 3 to 5 years as the economy is in a deflationary stage due to the economic plummet...and will not experience inflation until people start "buying things" again, and that's going to take while! He also believes 3 to 5 years is probably the term until true economic recovery establishes in the US and world economy.

6) China must start selling their products to people in their own country and paying their workers enough to buy them. This would increase their products prices, reducing their exports (and "besides they will lose interest in having more US dollars anyway") and enabling other countries (US) to compete with them.

7) The greatest threat to the US economy is one of around 9 world events that could heap misery on top of misfortune at exactly the wrong time. A nuclear incident with N Korea, a plague, Israel attacking Iran (oil shock), or such could still throw the US economy into a Great Depression style situation. He said the greatest risk of this is anytime from now until the world economy gets somewhat back on it's feet...in 3 to 5 years.

I thought you might find what Bronner had to say interesting. You may or may not believe it. But, at least it's from a credible and intelligent source.

[trof]

1. Link to newspaper story:

http://blog.al.com/business-alabama/2009/07/bronners_reported_doomsday_spe.html

[peace frog]

2. From the newspaper:

Where will the fix come from?
"What has happened is, you've not gotten a lot better because you're still just operating at 65 percent capacity. The fix has to come from jobs. It you look at all the recessions we've had, all the stuff going back to the depression -- most of your readers look at the technology bubble that blew up the technology sector --but this time, when the financial system blew, it blew out the banks, the insurance companies, hurt pension funds. The old adage is there is no place to hide. You got hurt everywhere. In the previous recessions there was a place to hide that would be ok. But now we're in an asset valuation tumble."

[AnneD]

3. Except for the added monkey wrench of ...

North Korea and Israel and Iran (I hadn't contemplated that yet)....yeah that's my take too.

[geckosfeet]

4. He spoke at the Tuscaloosa Rotary Club.

I think that he threw in some particularly dramatic doom and gloom imagery to play to the southern crowd. He must provide ammunition for them to demonize the the Obama administration (and possibly position himself for a run for political office in 2012).

I do think his general theme is correct but I disagree with some of his specifics. To say that all states face a similar fate as Alabama and California is an exaggeration. Consider Nebraska. Low unemployment and real estate problems. Massachusetts has a budget shortfall but nothing like the collapse Bronner is forecasting. I think that state politics and budgeting processes are more a factor in weathering the economic crisis than real estate, oil, Wall St. bailouts, inflation, China's economy and uncontrollable world events are. Not that these things are not factors in state budget planning processes (for smart fiscal planners).

I do take issue with his characterizing the Bush Wall Street bailouts as a stimulus. The bailouts were not part of the stimulus plan. They were a Bush administration and Henry Paulson fabrication to enrich their crony pals.

[tomreedtoon]

5. First off, remember what Alabama retirement is:

it's locking Grandpa up in the attic until he dies.

Second, the guy thinks Bush's tax cuts were a stimulus. He must have been educated in Florida schools.

Third, he's only talking about pointless, incomprehensible economic matters when malls and businesses close. He doesn't talk about what would really happen; mobs of homeless people breaking into places with bricks and crowbars, killing and looting at will. (And for once it won't be black people rioting, which my racist sister insists will happen; it'll be jobless white people.)

[trof]

6. Well, I just have to differ with you.

Bronner is head of all the Alabama state employees' pension/retirement system, and they ain't locking grandpa up in the attic.
He calls the tune on where the money is invested.
About 35 billion worth.

He wields a heavy and respected (nationwide) investment hammer.
Retired state employees enjoy good medical and pension benefits.
They are much sought after jobs, and Bronner is the main reason.

A commercial real estate meltdown (malls, stores, buildings, businesses, etc.) means loss of JOBS, son.
Pointless?
No.

I don't know about the 'bricks and crowbars', but I seriously doubt it.
I'm not stocking up on ammo.
:eyes:

[tomreedtoon]

7. If you don't have a job, you need ammo.

Because you'll need it when the riots start. If for nothing else, self defense. More likely, you'll need it to do a hostile takeover of the people who still have food. Thanks, President Bush.

[dixiegrrrrl]

8. Did he mention that Alabama refused to take any stimulus money?

True story.

As for his points, did he mention if the Alabama Pension Fund had invested in those CDO's and other
risky funds? And if so, what responsibility HE has for any negative impact on the state pension fund?

Did he mention that The Pension Benefit Guaranty Corporation posted a $33.5 billion deficit for the first half of fiscal year 2009?
:

The fall of the commercial real estate market, along with the collapse of the Alt-A/ARM loans is indeed
coming, and that market is much much bigger than the subprime market was.
Worse yet, Europe is harder hit in many ways than we are.

dunno how effective the rise in property taxes will be, there are so many people with homestead
exemptions, plus the over age 65 and the disability exemption. Plus the fact home values have dropped.

Anyhow, glad you posted the above. Most of his info. has been affirmed by people who seem to know what they are talking about ( exception being his comments about Bush )
Frankly, if un-employment were being counted accurately, we have already hit the wall on that.