By Elliott Wave International
Did you get a heads-up from the financial media that the U.S. banking system was vulnerable before the failures of Silicon Valley, Signature and First Republic banks?
There may have been outlier articles here and there but no real warnings.
By contrast, the 2021 edition of Robert Prechter’s book Conquer the Crash, Last Chance to Conquer the Crash, reminded readers that:
In a crash and depression, we will see falling asset values, massive layoffs, high unemployment, corporate and municipal bankruptcies, pension fund implosions, bank and insurance company failures and ultimately social and political crises.
As you know, some of these things have recently been unfolding.
Let’s focus on pension funds for a few moments. Yes, some recent articles have provided warnings, but they have not been widespread.
The headline of one of those news items is from the Washington Post (Feb. 14):
Time Bomb of Public Pension Funding Ticks Louder
Many public pensions suffer from funding shortfalls. In other words, they don’t have nearly enough money to meet their obligations. More than that, investments are being made in potentially financially dangerous assets to boost returns, such as private equity.
Many people who are counting on a pension probably don’t know that some private equity firms have invested pension-fund money in the housing market since the Great Recession — yes, they bought actual houses. As the Atlanta Journal Constitution reported (Feb. 12):
Private equity firms like Blackstone Group, Pretium Partners and Amherst convinced public pension funds and other large institutional investors to bankroll their homebuying sprees.
If the housing market crashes, you guessed it, some pension funds will take a big hit.
Here’s another headline from a British newspaper, the Guardian (Feb. 2):
US pension funds are on the brink of implosion — and Wall Street is ignoring it
However, Elliott Wave International is not ignoring it.
As the Elliott Wave Theorist said in February [The Elliott Wave Theorist has published monthly since 1979 and covers major financial and cultural trends):
Unfunded liabilities of states’ pension funds in the U.S. stood at $1.3 trillion as of year-end 2022. Private pension funds are underfunded as well. The whole system has made promises it can’t fulfill.
And, getting back to the banking crisis, the FDIC may face challenges fulfilling its promises to depositors if bank failures become widespread. In other words, the FDIC can only “make whole” a limited number of depositors at one time (up to $250,000). Whether the federal government steps in is another matter. The point is: it may not be wise to count on the FDIC during a major banking panic.
So, the question arises: Are there viable alternatives to banks?
Elliott Wave International is now offering a special report titled “Your 5 Top Alternatives to Banks,” which is excerpted from Robert Prechter’s Last Chance to Conquer the Crash.
You can access this special report for free when you join Club EWI, the world’s largest Elliott wave educational community. Just follow the link below:
Read “Your 5 Top Alternatives to Banks” now when you sign up for a FREE Club EWI account.
This article was syndicated by Elliott Wave International and was originally published under the headline Is a Pension Fund Crisis Next?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.