Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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