Canada’s Pension Fund Math Doesn’t Add Up

Andy Snyder|September 17, 2020

Canada, oh Canada.

The land up north is in the news and in our mailbag this week – both with ideas that make us smile.

We’ll start with the latest word from Canada’s famed pension fund.

It has a big charge. It must turn a lot of money into a whole lot more. And it must do it without going broke in the process.

It’s that last part that apparently has its bosses tossing and turning at night.

This whole zero interest rate thing is really messing with their plans.

The latest worry is what to do with all those oh-so-safe government bonds. Back in the day, they used to pull their weight. Given enough time, they were a reliable way to make some scratch.

A bond with a 4% payout would double its owner’s money in 18 years. Not great, but for a pension fund with $400 billion under its mattress and a timeline that stretches to perpetuity and beyond… that’s a lot of income each year.

Not now though.

The Zero Problem

At today’s rates, it would take 110 years to reach a double. That’s assuming 1) the payer is still around in a century and 2) their cash is worth anything.

Canada, like a lot of sound-minded folks, is wondering whether the risk is worth the reward.

Should it change its long-standing risk-reducing model?

“The fact interest rates are now zero-bound – does that change the diversification benefit of bonds in the long term?” asked Mark Machin, the poor fella in charge of the fund. “I think we, like a lot of long-term asset owners, are looking at reviewing that.”

We hope he’s a Manward Letter reader. Despite our mug on the masthead, it’s a popular thing these days.

Perhaps that’s because we’ve stayed well ahead of this mess. We’ve warned of the acrid fallout from the death of interest rates for years.

Better yet, in the next issue, we’re debuting a brand-new diversification model that flat-out eliminates many of the worries that keep folks like Machin (and probably you) up at night.

Instead of relying on math that may have added up 50 years ago (when interest was high, quantitative easing wasn’t a thing and the dollar was still tied to gold), it’s clearly time to do something new.

Something, dare we say it, a bit more modern.

The View From Canada

There will be plenty of time for those details later. For now, let’s turn to the Canucks in our mailbag.

We can add Canada to the growing list of countries that are mad at us (move over, France!)…

Andy, I thought that you were a pretty good guy until I read the last sentence of today’s email.

Let me be perfectly frank, “Please keep your American rejects at home!” Canada does not want them nor do we need them.

You Americans wonder why the people of the world hate you. I ask you, “Is this any way to treat your neighbour?” Canada has been nothing but good to the United States and its people.

If nothing else please treat us with dignity and respect. We deserve nothing less! As well, perhaps you should think before you write this nonsense. – Reader L.D.

Oh my.

The reader was responding to our piece from Tuesday, where we updated the world on our presidential bid we keep forgetting about.

We said we’ll veto all the fun-feeling, Big Government stuff when we unpack our laptop in the Oval Office. And if you don’t like it… move to Canada.

But it is true that plan is not fair to Canada. If it’s closed our borders due to a virus, surely it doesn’t want the plague of socialism infecting its land any more than it already has.

But if it won’t take our “rejects,” will it still take our money?

Perhaps we’ll hear from Mr. Machin listed above. He may have a very different opinion. He’s been dealing with American rejects in a different form for more than a decade.

Moving on before we say something that may accidentally get us elected…

Dear Mr. President…

Lots of readers wrote us this week with suggestions for our campaign platform. We like the ring of this one…

President Andy:

I would start by looking at ALL programs in which subsidies have been provided to an individual or company for more than 2 years and cut those off. One of those has to be the renewable fuels… what a joke!

If the business is not profitable on its own merits within 2 years, then it needs to die. We need to quit subsidizing poorly run businesses/programs which do not support themselves.

Pure and simple, get off the government payroll. The government should be providing the services to the nation which are required: defense, infrastructure, economic growth and stay out of private business. – Reader R.W.

Ruh-roh… This sucka’s loaded.

No more subsidizing poorly run entities, huh?

We’re all about it. But we hope you own lots of gold and silver and know how to grow your own food.

The world will go dark.

Most farms will close. Fuel prices will soar. The mail will stop (sorry, Amazon). And Washington will implode.

But the most painful effect few folks would see coming?

Don’t look down, but Wall Street would plummet.

Those zero percent interest rates that Mr. Machin scratches his head about are the biggest subsidy since Eve got a free apple so many moons ago.

The sinful trouble they will cause is just the same.

Speaking of which…

Tin ears, blind eyes. It is so sad that your solution to saving the Country is “Hey everybody, let’s trade some stocks” while 30 million children do not have enough food, and another 20 million families have lost their medical insurance in the middle of a pandemic.

Perhaps you are just so sophisticated that if you had to make the immediate choice between feeding your family, paying the rent so you don’t become homeless and buying a fractional share of the S&P 500 (with no commission!), you would join the upper half of Americans who own stock while your family starves in the rain. – Reader J.L.

We’ve said many, many times that right now is the greatest time in a long time to be an investor.

Trades are free.

We can buy a stake in any company – regardless of its share price – for just a buck or so.

And the whole darn thing is being subsidized by Uncle Sam’s free-money machine.

If we want families to feed their kids and have a roof over their heads, don’t give them directions to the welfare office… teach them how to invest, and show them why it’s so important.

But here’s the funny thing. It’s what makes the note above so worthy of a sigh and a chuckle. It came from a reader with a government-issued email address – specifically from a county in California that can see the Golden Gate Bridge on its border.

We’d expect nothing less from somebody who earns a living working for the government – where pain and suffering is job security.

Last one, then we’ll go do something productive with our day.

Yep… We’re Unelectable

Here’s a note we received in response to Joel Salatin’s lovely essay on lost skills.

The greatest loss has been the ability to consider, evaluate, study a situation and make a decision on your own instead of letting the government tell you what you should do. Because, as most younger people have been taught, the government is always right and will take care of you.

Some of us still know better. – Reader J.N.

Amen.

Think differently. Get educated. Read a lot. Depend on yourself. Invest. Don’t spend.

It’s no wonder we’re unelectable.

Thanks for all the notes. They keep us sharp.

Keep them coming with an email to mailbag@manwardpress.com.