Over-confidence, social security, bonds–oh my!

Some this and that of interest this week:

Investors are once again over-confident about future returns. 10% returns are expected from those in North America and Europe, and 17% returns from those in South America and South Africa. Such returns are above historic averages, and present high valuations make those outcomes extremely doubtful. Not a good sign to a contrarian.

Academics believe the Social Security Administration has had a systematic bias over the last 15 years, over-stating the financial health of the social security program. In particular, the Social Security Administration has been under-estimating life expediencies. This probably means our benefits will be cut sooner and deeper than many suppose. The problem is unlikely to surface soon, but in 15-25 years will likely become a BIG problem. This will have a significant impact for those with a longer time horizon (younger) and for with plenty of their own savings (yes, we will get punished for being prudent).

Most casual observers of markets focus on the stock market. Not so for professionals, who know that bond markets are bigger and more important than stock markets. So, it may come as a surprise to many that bond markets have experienced a major rout over the last month. The downdraft did not hit junk or municipal bonds worst, but super-safe German and U.S. government bonds. Such big moves in super-secure bonds could potentially be the beginning of investors losing faith in government control of interest rates. There’s no reason to buy dried food and run to the fallout shelter, yet, but it bears watching.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

Over-confidence, social security, bonds–oh my!