Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Learn to Spot Reliable Trading Setups: ANY Market, Any Market Time Frame - 21st Oct 19
How To Secure A Debt Consolidation Loan Even If You Have A Bad Credit Rating - 21st Oct 19
Kids Teepee Tent Fun from Amazon by Lavievert Review - 15% Discount! - 21st Oct 19
Stock Market Stalls: Caution Ahead - 21st Oct 19
Stock Market Crash Setup? - 21st Oct 19
More Stock Market Congestion (Distribution) - 21st Oct 19
Revisiting “Black Monday Stock Market Crash October 19 1987 - 21st Oct 19
Land Rover Discovery Sports Out of Warranty Top Money Saving Tips - 21st Oct 19
Investing lessons from the 1987 Stock Market Crash From Who Beat it - 20th Oct 19
Trade Wars: Facts And Fallacies - 20th Oct 19
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Labor Department Institutionalizes Speculation

Stock-Markets / US Stock Markets Oct 25, 2007 - 12:39 PM GMT

By: Tim_Iacono

Stock-Markets One day, the "asset prices must always be pushed higher" approach toward preventing the U.S. economy from succumbing to the gravitational pull of deflation will run its course and the " rentier culture " will beat a hasty retreat back to wherever it is they came, but after the decision the other day by the Labor Department to require new employees to invest in stocks if they make no other choice during what is normally a very confusing first day at their new job, well, the hasty retreat has been pushed back a little bit.


As documented in this WSJ story($) and as heard elsewhere on business news channels the other day, the Labor Department has seen fit to require employers to make 401k participation the default choice for new employees (a good thing). In addition, a new rule will limit the default investment options to only three choices, all of which include stocks and none of which guarantee the return of principle (potentially a very bad thing).

The insurance industry is understandably disappointed after stable value funds were excluded from the list of default options that, according to the WSJ report, includes "balanced funds, which typically have a fixed blend of stocks and bonds; life-cycle funds, which have asset allocations that shift gradually over time, based on an investor's age; and a diversified portfolio of funds managed by an outside adviser."

Those companies that already have their own "default 401k enrollment" plan in place and had opted to put new employees' savings into safe and secure stable value funds will have a few months to direct new employees' money into equities. Apparently, making stable value funds the default investment choice in the past had been done in order to minimize the possibility of law suits resulting from these "default" investments losing money and angry ex-employees seeking redress.

Now that the Labor Department has "institutionalized speculation", lawyers will have to look elsewhere for clients.

Statistics show that about one-third of new employees had chosen not to participate in 401K plans at all, which makes the revised rules requiring some effort to "opt out" sensible, but, other than the obvious need to help ensure that asset prices are always pushed higher, why exclude stable value funds?

Stable value funds will generally earn four, five, or six percent and inflation is only two or three percent - at least that's how fast the Bureau of Labor Statistics says prices are rising.

Over a period of many years, this sort of real, compound earning can be a powerful thing.

A few years back, after the stock market bubble burst, short-term interest rates were slashed to freakishly low levels and money market accounts earned only one percent. At such times, stable value funds are like an oasis for 401k investors.

It seems like there should be some God-given right to earn five percent on your money in a safe and sane way regardless of what the central bankers do. Fostering, ignoring, and then cleaning up bursting asset bubbles with low interest rates, as was the pattern of former Fed chief Alan Greenspan, shouldn't result in risk averse savers being punished.

All 401k plan participants shouldn't have to invest in stocks, but soon they will - unless they opt out on that confusing first day or modify their selections later (which most employees never do).

We're probably headed back to one percent short-term interest rates again as a result of the most recent asset bubble bursting and who knows where equity markets will head in the years ahead - when the new 401k rules take effect next year, there will be few more dollars helping to push stocks higher.

 

By Tim Iacono
Email : mailto:tim@iaconoresearch.com
http://www.iaconoresearch.com
http://themessthatgreenspanmade.blogspot.com/

Tim Iacano is an engineer by profession, with a keen understanding of human nature, his study of economics and financial markets began in earnest in the late 1990s - this is where it has led. he is self taught and self sufficient - analyst, writer, webmaster, marketer, bill-collector, and bill-payer. This is intended to be a long-term operation where the only items that will ever be offered for sale to the public are subscriptions to his service and books that he plans to write in the years ahead.

Tim Iacono Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules