Peter's Perspective
29th August 2016 by Peter Churchouse

Going… Going… Ore-gone…

Wherever I go in the world, for business or leisure, I always ask myself two basic questions…

The first question; what’s happening in the local property market?

Are prices trending up? Down? How’s supply looking? What about vacancy? Is anyone building or redeveloping?

I’ll pop into local real estate agents. I’ll ask around whoever I’m with (people love talking about their real estate markets).

The second question; what’s happening in the local economy?

What do people actually do for a living here? What do income levels look like? How about unemployment? And on it goes.

This may sound a bit geeky… but the answers to these questions are fascinating to me. And people are willing and very enthusiastic to tell you what they think

And it doesn’t matter where I am. Whether it’s Oregon like last week… or when I’m back in New Zealand next month… or visiting Las Vegas the following month… or touring Zambia the month after that…

I always look for answers to those two basic questions.

So I spent the past week in Gold Beach (population 2,253), on tucked away on the west coast of Oregon, about five and a half hours drive south of Portland.

The skies were blue. The air, fresh and clear… fishing the great outdoors of the Rogue river and Pacific Ocean.

Peter and Tama take a break to do some fishing in Oregon.

I’m fortunate enough to spend a few days here every couple of years with some great financial minds… fishing, barbecuing, the occasional glass of wine… and a lot of conversations with my friends as well as the locals… getting answers those two questions I mentioned.

Talking about jobs and the local economy in Oregon, it struck me that the government employed a heck of a lot of people.

But it was one particular aspect that kept cropping up again and again… it was the number of government workers (city, local, state, and federal) who had already, or were just about to retire… and the amount of pension money owed them.

It was astonishing. And as the days went by this story kept cropping up again and again…

One particularly vivid example (of many): A friend based in California who told me that the Chief Firefighter at his local town had recently retired.

He’d put in 20 years. He was at least a decade younger than me. And he’d be enjoying a very substantial six-figure salary… for the rest of his life… which could easily be another 20 or 30 years…

When the Americans had left the room, Tama and I would just say to each other… “How the HECK is the government going to afford all this?”

And it got even worse.

We met a guy who had hit retirement, was getting a fat government pension cheque… and had immediately been hired back at full pay by the exact same government agency!!!

I’d heard of this concept of ‘double-dipping’… (taking retirement, getting your pension, and then immediately taking the job you’ve just vacated!)… but, seeing it first-hand, for ourselves… in a small, modest? relatively poor town in rural Oregon… it’s why I spend so much time travelling.

In all honesty, I’m perfectly familiar with America’s social security funding crisis. It’s been talked about at length for many years now.

But large, slow-moving problems are often pushed back to the ‘worry later’ part of the brain… but when you see the reality on the ground… it really hits home.

The realization just hits you like a brick.

The United States will face an almighty day of reckoning.

This isn’t ‘doomsday talk’. It’s just numbers… plain and simple. Sooner or later the money will simply run out. Maybe ten years. Maybe more, maybe less.

As credit-rating agency Moody’s put it just a few months ago:

The unfunded liabilities of the various federal employee pensions systems, covering civilian and military employee benefits, amount to about $3.5 trillion, or 20% of US GDP. Additionally, Moody’s estimates that unfunded state and local government pension plan liabilities are of the same magnitude, bringing the total shortfall to 40% of GDP.

The bigger challenge to the US comes from the unfunded liabilities for the Social Security and Medicare programs. The Social Security funding gap is estimated at $13.4 trillion, or 75% of GDP, while the shortfall from the Hospital Insurance component of the Medicare program amounts $3.2 trillion, or 18% of GDP.

Does anyone expect the U.S. government to address this problem?

Will any politician ever stand-up and take responsibility for this social security/pension ‘third rail*’ (see below)?

And even if they did, would the U.S. electorate even vote for them?

The voters of this country are not interested in doing anything about it.

*The third rail of a nation’s politics is a metaphor for any issue so controversial that it is “charged” and “untouchable” to the extent that any politician or public official who dares to broach the subject will invariably suffer politically. It is most commonly used in North America.

What can you do about it? Well, I’ve been saying for many, many years now: DO NOT RELY ON ANY GOVERNMENT TO TAKE CARE OF YOU IN OLD AGE.

Folks my age will probably be the last generation who enjoy the kind of ‘double-dipping’ shenanigans I’m talking about.

If you’re younger, you better start thinking about building your long-term wealth today…

But right now I’m sitting here at Salito’s restaurant here in San Francisco looking out at the bay.

My fish and chips should be on the table soon. My flight home to Hong Kong is later tonight.

San Francisco and its people provide a great metaphor for the problem I’m talking about.

Ask anyone here, they’ll tell you they KNOW a big earthquake is coming.

They expect it soon.

And they expect it will be devastating…

Do they worry about it today or even talk about it?


But they know it’s coming.

And I know that an even greater, national, full scale financial crisis will strike as well.

Good investing,

Peter & Tama

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