Here is a non-surprising fact. Most retired individuals do not choose to voluntarily annuitize their accumulated wealth or savings at retirement. They prefer the lump sum. This has been christened by financial economists: “the annuity puzzle” and has been the topic of Ph.D. theses for decades. I am guilty of supervising a few of these myself.
Sadly, life annuities are relatively unpopular – especially compared to stocks and bonds — in a large part of the world and simply unavailable in most others. Indeed, the few jurisdictions and countries in which there is a sizeable market for annuity products – such as Canada or the U.S. — it is often driven by tax-advantaged treatment and/or government “nudging and defaults” as opposed to an intrinsic consumer appreciation for longevity insurance. Like most insurance products, they are ‘sold’ but rarely purchased.
Could the past hold the key to Longevity Insurance?
Well, I believe one of the reasons for the lack of interest or disdain for life annuity products – while the demand for fixed income bonds is undiminished — is the opacity, public confusion and limited selection of mortality credits; which are the raison d’etre for annuitization. Indeed, there are hundreds of ways to save (i.e. accumulate) money for retirement – instruments such as stocks, bonds, mutual funds and ETFs – but there are precious few choices for dissaving (i.e. de-accumulating) and generating income in retirement.
So, here is my pitch. Perhaps a resolution of the so-called retirement “annuity puzzle” is to design products that make it easier for buyers to determine exactly what they are getting in exchange for giving-up liquidity and sacrificing some bequest and legacy value. In fact, these sorts of products that I have in mind were available and quite popular centuries ago. It might sound odd, but when it comes to finance and insurance products, I look to the past for inspiration.
King William’s Tontine
Here is the story. In the year 1693 – back in England — the government of King William III, previously known as William of Orange, needed vast sums of money to finance his war against King Louis XIV of France. This was actually year or so before the Bank of England was established primarily to finance wars, and parliament was in the early stages of experimenting with new and untested borrowing schemes.
Anyway, parliament decided to borrow the money — in increments of £100 units — from wealthy investors in London and abroad. Today we might call what they issued a government bond. In fact, it operated in a way that was quite similar to modern day debt instruments, except for one very small but rather chilling feature.
Investors or buyers would receive annual coupons of 7%, paid semi-annually by the Exchequer. Year after year the bond paid £7 to investors who were willing to ‘lend’ King William and his government the £100 in the year 1693.
But – and here is the key – if and when the investor or bond buyer passed away and died, he or she would not be able to bequeath or bestow the investment to a family member or loved one. The investment benefit would extinguish itself upon death. Instead the forfeited 7% coupons would go to those still living. To paraphrase Mr. Goldfinger in the famous movie named after its main villain, the ‘bond’ was ‘expected to die’ with the master.
This ladies and gentlemen is a tontine (rhymes with Drunk Queen) scheme.
Tontine: The dead subsidize the living
If this sort of arrangement seems odd and morbid – and you wonder why anyone in the world would buy such an odd thing – think about it carefully from the perspective of those who didn’t have the misfortune to die young. The longer they lived, the more income and cash they received, that is other people’s money. The coupons increased with age; which actually served as an inflation hedge of sorts. After all, living to a grand old age can be rather expensive today or in the 18th century. In the case of King William’s Tontine – as this scheme was known — the oldest known survivor lived to the amazing age of 100. She earned thousands of pounds per year, which is quite the pension and envy of many retirees today.
Over time this tontine scheme and many others were superseded by ‘the sturdy bond’ we use today and insurance companies took over the business of selling ‘retirement life annuities’, which are based on the same principal.
The pension and income annuity we all know today is a distant relative of the tontine. Alas, a number of countries banned these tontines outright in the last 19th century, partially under the misguided fear that some of the longer living investors might try to kill each other. To my knowledge, this never happened.
Time to resurrect tontines?
Sadly though, today, tontines are more likely to appear as a plot in a fantastical murder mystery or as punch line of a joke, rather than in serious discussions about government financing. But in fact, there is a strong argument to be made that these sorts of tontines should be resurrected from the dead and re-introduced in the 21st century. I think it is time to look to history for new (or old) ideas.
In sum — and without getting too technical here — my simple back-of-the-envelope calculations indicate that if retirees were willing to allow for a just a little bit of “demographic variability” around their income, they could increase their expected retirement income by 10% to 15% without taking on any stock market (or any other) risks. Stated differently, your Findependence Day might arrive a few years earlier.
Intrigued? More questions? Read the book: KING WILLIAM’S TONTINE: Why the Retirement Annuity of the Future Should Resemble its Past (Cambridge University Press, May 2015)
Moshe A. Milevsky is a tenured professor at the Schulich School of Business at York University and Executive Director of the IFID Centre at the Fields Institute for Research in Mathematical Sciences in Toronto. He has published 12 books, over 60 peer-reviewed papers, hundreds of newspaper and magazine articles and serves on the editorial & advisory board of numerous scholarly journals. He has written for the Wall Street Journal, the Globe & Mail, the National Post and Research Magazine. Moshe has also delivered more than 1,000 lectures and keynote presentations to audiences around the world. He was recently selected as one of the 35 most influential people in the financial industry by Investment Advisor magazine. In addition to being the author of King William’s Tontine, he is also the co-author (with Alexandra Macqueen) of PENSIONIZE™ YOUR NEST EGG (2nd edition, WILEY, April 2015).
Details are still sketchy but both major daily newspapers are reporting a plan by the Conservative Government that would let Canadians boost their payouts from the Canada Pension Plan by letting them voluntarily contribute more.
Whether this constitutes enough federal action to get the much-criticized Ontario government proposal for an Ontario Retirement Pension Plan (ORPP) overhauled or aborted remains to be seen. All along, it seems, Ontario went out on a limb with ORPP out of frustration that the federal government seemed disinclined to expand the CPP. Certainly an involuntary expansion that would have forced businesses to take on higher payroll expenses would not have been an easy sell but a voluntary scheme is quite a different matter.
Consultations will be held in the summer to flesh out the details, Finance Minister Joe Oliver said in the House of Commons Tuesday. The Globe observes that labor groups and seniors advocates like CARP do not believe that voluntary savings vehicles work and that therefore a mandatory expansion of the CPP is needed to make sure Canadians save enough for retirement.
Oliver sees the voluntary expansion working in concert with the new improved TFSAs as well as Ottawa’s PRPPs (Pooled Registered Pension Plans).
Voluntary CPP expansion makes sense, especially for those who lack true DB pensions
The voluntary expansion of CPP makes sense to me, since — like RRSPs and TFSAs — it involves individual discretion. One attractive thing about the CPP is that it acts like a real inflation-indexed pension, just like the employer sponsored Defined Benefit plans that so many politicians and government workers will be counting on in their old age.
As finance professor and author Moshe Milevsky has argued in the new second edition of his book, PensionIze Your Nest Egg, RRSPs, RRIFs, TFSAs and even Defined Contribution plans (like the PRPP), are not true pension plans but are capital-appreciation plans. In order to get the guarantee of an income for life, they must be converted into life annuities or hybrid vehicles like variable annuities.
In fact, so valuable are government pensions like the CPP and Old Age Security that many near-retirees who lack true DB pensions plan to delay receiving CPP/OAS benefits until their late 60s or age 70, in order to get much bigger payouts of CPP and OAS. The greater your expectations for living to a long and healthy old age, the more valuable true pensions become.
Based on what little we know so far, a voluntary CPP expansion sounds promising but the devil of course is always in the details. If, for example, Ottawa created a mechanism to allocate some portion of severance packages into voluntary extra CPP contributions, that would be a boon to anyone caught in corporate downsizings and mergers. And there are many other ways a more flexible voluntary CPP expansion could be made to work.
Regular readers will know that if I had my druthers, the headline would read more like the one we’ve displayed above: “Why Work probably won’t end after your Findependence Day.” (that is, the day you achieve Financial Independence).
I don’t view the terms Retirement and Financial Independence as interchangeable. By definition, Retirement (or at any rate, traditional full-stop Retirement funded with a generous Defined Benefit pension) means no longer working for money. Financial Independence (aka Findependence), on the other hand, can occur years and even decades before traditional Retirement and so seldom means the end of productive work.
This very web site — as well as the now six-m0nth-old sister site, the Financial Independence Hub — is dedicated to clarifying this distinction. And of course the Hub also constitutes a big element of my own personal Encore Act: next Tuesday will be the one-year anniversary of my own Findependence Day. In my case, I define that as no longer working as an employee of a giant corporation or government entity, and having the financial resources to work if I choose to, and not if I don’t.
Click on the link for details, but in a nutshell — and has been extensively reported in the media, such as this piece by Gordon Pape (subscribers only) — there’s no reason why you can’t add another $4,500 to your Tax Free Savings Account right now, in addition to $5,500 you may have contributed anytime on or after Jan. 1, 2015. (Note to American readers: the TFSA is the equivalent of Roth IRAs, providing no upfront tax deductions but which let you eventually withdraw money tax-free in Retirement or for other purposes).
That means a whopping $20,000 per couple. Now while Liberal Leader Justin Trudeau seems to think only “rich” people have that kind of money available, the fact is that many hard-working middle class people have been saving and investing for the better part of two or three decades, and built up substantial non-registered or “taxable” portfolios. Even though they may have paid income tax to acquire the capital in the first place, over those decades they have been paying annual taxes on interest, dividends and (often) capital gains generated by that capital.
As the column points out, those who have built such “open” portfolios don’t have to use new cash to put $10,000 per annum into their TFSAs. They merely have to start transferring their non-registered securities into their TFSAs. This is called a “transfer-in-kind” but as I have pointed out here and elsewhere (see for example last Friday’s piece in the Financial Post: The Million-Dollar Tax Problem), the tax rules are complex. In a blog I wrote this week for Motley Fool Canada, we also look at How to make an extra TFSA contribution if you don’t have $4,500 lying around. Read more
A global study on retirement finds 15% of Canadian workers don’t expect to ever fully retire, but many plan to downshift gradually into semi-retirement.
Compared to 14 other countries surveyed, Canadians do well in reaching their later-in-life goals, even if they have to spend all their wealth and leave less to their children.
HSBC’s latest global report — The Future of Retirement, Choices for later life – surveyed 16,000 working-age and retired people, including 1,000 Canadians.
When asked about their attitude towards spending and saving, 27% of working-age Canadians say “spend all your money and let your children create their own wealth.”
The study also found Canadian retirees are much more likely to reach their later-in-life goals than some of their counterparts in other countries. 44% of Canadian retirees have reached “at least one of their retirement hopes and aspirations,” well above the global average of 24).
Mixed sentiments on semi-retirement
Canadian retirees are among the most likely to feel forced into semi-retirement, but almost half of those still in the workforce are planning for it. Only 17% of today’s fully-retired Canadians say they semi-retired first, versus 45% of working-age respondents who say they plan to semi-retire before taking the traditional full-stop retirement.
While semi-retirement can be forced on some as employers look to downsize older more expensive workers, many full-time workers actually aspire to semi-retirement. 15% of Canadians who are retired say they made the decision to semi-retire due to a lack of employment opportunities later in life. Only Australian retirees (17%) reported a lack of job prospects in greater numbers than Canadians, and respondents from both countries were well above the global average (10%).
“This latest research suggests that older Canadians and those approaching retirement age may also be feeling the pinch of underemployment at time when saving for the future is often at its most crucial,” said Betty Miao, Executive Vice President and Head of Retail Banking and Wealth Management, HSBC Bank Canada, via a press release distributed Wednesday (April 29).
Semi-retirement can also be forced on mid-career workers
Even among younger workers, 10% of survey participants between the ages of 45 and 54 admit their shift into semi-retirement wasn’t their personal choice. HSBC suggests that in the post-downturn job market, many experienced workers are being overlooked for full-time positions. In fact, half of all semi-retired respondents globally say they changed careers when they stopped full-time work. HSBC says some of these will be high achievers who reached their career aspirations and financial goals before retirement, but the figures “also point to a pool of wasted potential among experienced employees.”
The research also shows a major shift in how Canadians plan to retire in the future. While only 17% of those now fully retired say they semi-retired first, 45% of working-age respondents plan to semi-retire before taking full retirement. Around the world, an average 26% of working-age people plan to semi-retire at some point.
Miao says that with expected shortages of skilled labour in some sectors and professions “career opportunities look bright for at least some of those planning to work into their golden years.”
The full global and Canadian retirement survey reports and online retirement planning tool are available online here.
At least one of Canada’s big banks is giving clients the go-ahead to top up their Tax-Free Savings Accounts by the extra $4,500 amount specified in Tuesday’s federal budget.
CIBC Wealth’s Jamie Golombek says the Budget included draft legislation that allows for an increased TFSA dollar amount for 2015 to $10,000, up from $5,500, the current 2015 TFSA dollar amount. But critically, he added:
Jamie Golombek, CIBC
“We have received confirmation from the Canada Revenue Agency that, while the legislation is subject to Parliamentary approval, consistent with its general approach for proposed income tax changes, it is administering the measure on the basis that $10,000 is the new TFSA annual contribution limit. Clients may therefore proceed to contribute to their TFSA based on this proposed law.”
On Wednesday, sister site Financial Independence Hub ran an (since updated) blog that suggested investors contemplating such a purchase hold off a few days, pending comment from the Canada Revenue Agency and Department of Finance. When I made inquiries at my friendly local financial institution (RBC), I was initially dissuaded from this course. I was told I could do the transaction at the discount brokerage but it would be at my own risk until the proposal is formally enshrined in legislation later this summer.
In the original blog, Golombek said that “In the event the legislation is not ultimately finalized, in my view, it is unlikely that the CRA would penalize taxpayers for acting on draft legislation.”
This morning, I pressed Golombek further with these questions:
So CIBC is saying we can proceed with the extra contribution now? Even if it got reversed, what would the worst-case consequences be? 1% per month on $4500?
Jamie’s reply (via email):
Yes. If the draft rules aren’t finalized, in CIBC’s view, it is unlikely that the Canada Revenue Agency (CRA) would penalize taxpayers for making these additional contributions.
Sheryl Smolkin: Make the transfer now
After the first version of yesterday’s blog was published, I had an email and Facebook exchange with pensions expert @SherylSmolkin of the RetirementRedux website.
Even before the CRA’s clarification via Golombek, Sheryl said she and her husband planned to make a $4,500 additional TFSA contribution now. Here’s what she said on Facebook:
“Majority government. it will pass for sure. I say make the transfer now.”
Based on Golombek’s statements above, it appears that while possibly risky to those wary of CRA recriminations, the likelihood is minimal that Canadians will be severely punished by the agency in the event of the measure being revoked after an election that removed the Conservatives from power.
It occurs to me that maybe we should all follow Sheryl’s lead and contribute the $4,500 NOW. Can you imagine the furor if the 10 million or so Canadians already with TFSAs were confronted with punitive retroactive penalties and interest?
In that spirit, and subsequent to the initial draft of this blog, I made this transfer myself this morning (in-kind, see bottom of blog for details), as well as my spouse.
TFSA lifetime caps and other threatened reversals shaping up as Election issue
It seems clear from the second-day newspaper coverage of this, that super sized TFSAs are shaping up to be an election issue. The Opposition parties appear bent on reversing the TFSA expansion. In particular, Liberal leader Justin Trudeau has vowed to reverse it if he wins power. Read Garr Marr’s (@dustywallet on Twitter) piece on possible TFSA lifetime caps in the Financial Post.
Some of the “Double Trouble” reports in February talked about a lifetime $800,000 cap as a possible future measure but Garry’s piece mentions a much lower $100,000 cap, which would be ridiculous, given that many TFSAs are already past that amount based just on the $5,000 and $5,500 limits already in place. MoneySense’s annual Great TFSA Race feature was showcasing individuals with $200,000 or $300,000 TFSAs more than a year ago.
Heck, once upon a time we had a $100,000 lifetime capital gains exemption which most Canadian baby boomers were deprived of just as they were starting to build non-registered wealth. And not to mention, the annual hassle of computing capital gains tax liability for preparing tax returns this time of year.
I once wrote an editorial in FP Comment explaining how TFSAs really just eliminate double or even triple taxation (first, income tax to come up with the capital in the first place; then annual taxes on interest, dividends and capital gains associated with what’s left of that capital, and arguably a third round of tax called consumption taxes [HST] once the remaining money is eventually spent on goods or services.)
Remember, TFSAs are Tax PRE-PAID
Remember, the original name for TFSAs was “Tax-PREPAID” Savings Plans. The Liberals and NDP don’t need to get voters riled up over the poor government being deprived of tax revenues for their wealth redistribution schemes. Ottawa gets its tax hit right upfront with TFSAs, and will eventually get a second whack when the money is spent. Seems good enough to me!
Also, remember that if — as outlined at the top of this blog — near-retirees and seniors start to convert non-registered savings in droves in order to fund these super-sized TFSAs, that will be a fantastic source of revenue for Ottawa. Every time you trigger a capital gain in order to move securities from taxable accounts to the TFSA, the cash register will ring in Ottawa.
Ottawa will also reap a tax bonanza as seniors start doing the same with their RRSPs and RRIFs. Justin Trudeau may say that “only the rich” have $10,000 lying around to fund TFSAs but seniors have much more than that in RRSPs, RRIFs and taxable accounts and need to move those funds into TFSAs just as soon as they are permitted to do so.
Why TFSAs upset the Left
But the piece I really think TFSA believers need to push today on social media is by the Post’s @KellyMcParland. My Twitter feed is full of this article, entitled Harper’s winning the wallet war. I highlighted in particular the sentence below. (Kelly is a feisty guy: I used to play hockey with him and he was a tough customer in the corners, let me tell you!)
“TFSAs upset the left because they violate the notion that governments are responsible for people, rather than the people themselves.” — Kelly McParland, National Post
Consider transfers in kind and taking a one-time tax hit
Of course, even if you don’t fear CRA reprisals, coming up with the $4,500 at tax time is another issue, if an ironic one, depending on whether you expect a tax refund or have to pay taxes for the looming tax filing deadline. Keep in mind that you don’t have to fund TFSAs with new cash: if you have significant non-registered investments you can “transfer them in kind” into the TFSA.
This may and probably will entail tax consequences (chiefly capital gains) for securities that have appreciated over time. Ironically, not crystallizing capital gains has been a sort of tax shelter of its own but to transfer them into a TFSA (or indeed an RRSP) it will be deemed a disposition for tax purposes. Ideally, you find securities that are close to their original purchase price, or find pairs of securities where gains in one offset losses in another.
The great thing, however, is that by taking that tax hit once, in the future the transferred securities will generate dividend and interest income that is almost totally tax free for the rest of your life.
Incidentally, I found the whole process relatively painless at my discount brokerage, although the in-kind transfer is not easily accomplished online: you may need to talk to a representative, as I did.
Who’s contributing more now?
I’m curious whether this blog’s readers intend to contribute the extra $4,500 now or plan to wait until the coast is 100% clear.
Feel free to comment on this blog below, or email me at firstname.lastname@example.org for possible inclusion in further blogs or columns.
My friend the inimitable Norman Rothery posted a blog at MoneySense.ca Thursday that was inspired by a Twitter exchange last weekend: the post is titled Apple Watch Delays Findependence.
On Twitter, I had publicly disclosed that I had pre-ordered the new Apple Watch, even though delivery is several weeks away. Norm made a query about the possible impact on Findependence, then followed up in his blog by suggesting that young people buying these gadgets might seriously be delaying the arrival of their Findependence Day(that is, the day they reach Financial Independence) by 17 days for the cheapest model and for as much as two years for the expensive glitzy gold model.
I have no great problem with the blog, a typically contrarian piece by a great value investor: it’s all grist for the mill, as they say and I’m happy to see an influential writer like Norm use the term Findependence. Even so, let me assure readers out there who may have fancied me to be a frugal kind of guy that I quite definitely did NOT purchase the expensive gold-banded version. For the curious, I picked one of the simple entry-level models with a black band and the smaller watch-face, roughly the model illustrated above.
I entirely agree with Norman that the first generation of technology tends to have kinks and it’s never a bad idea to wait for a few releases and let the pioneers suffer the slings and arrows of outrageous technology fortune.
One of the more entertaining financial presentations at this week’s BMO investing conference in Chicago was a keynote talk by author and broadcaster Andrew Busch on who killed the global economy. (I qualify this with the phrase financial presentations because Rick Mercer’s talk was also highly entertaining but could hardly qualify as being financial).
By contrast, Busch had worked at BMO Capital Markets for 22 years earlier in his career and grew up in Chicago. His financial research is available free here.
Billing his talk as a “Murder Mystery,” he ran movie clips from various Film Noirs to illustrate his points.
Among his suspects; the ECB’s Mario Draghi, Japan prime minister Shinzo Abe, China president Xi Jinping and the Federal Reserve’s Janet Yellen. Busch played the role of “Private Economic Investigator.”
Resemblance to Greece?
Starting with Yellen, he submitted clue number 1 as the unemployment rate. With 3 million Americans underemployed, this fact shows up in sluggish wage increases so “we’re not seeing an acceleration in wealth gains so are not seeing inflation.” What jumps out from the latest job numbers is where they are located; 14 million Americans are employed in local government, another 2.7 million in the federal government and 5 million more in the states. “Now we know why it’s important to look at government spending,” Busch said, “We have to pay tax to have them employed.” Sequing to Greece he asked rhetorically “Are we more like them than we realize?”
Clue # 2 pointing to Yellen is GDP, which slowed down from 5% in the third quarter to 2.3%. “This quarter will be bad and earnings won’t be good.” So far, markets are ignoring pre-warnings as the S&P500 stalls around 2100 but the earnings hit will be “substantive,” Busch said. However, “Most are ignoring it for good reason: we will snap back in the second quarter with GDP growth close to 3% as warm weather comes and things return to normal but we will hear lots about potentially negative GDP in the first quarter.”
The slump in energy prices has curbed inflation, which is “short-term bad but medium-term good because of more money in consumer’s pockets.” Cheap oil helps middle-income earners heat their homes and fill their cars’ gas tanks. That should translate into a pickup in consumer spending and accounts for the recent strength of consumer discretionary stocks.
The Fed’s motive is to normalize interest rates and its first opportunity to raise them will be in June. But the Fed itself is still not sure when inflation and average hourly earnings will go up. “We don’t know what the Fed will do because they don’t know.” The process has begun with hikes in the minimum wage at major retailers like Walmart, Target and even McDonalds. “At some point the Fed will act and I believe it will be in June.”
Dead Man Walking
Busch then moved to Suspect #2 (Mario Draghi) by rolling another film clip. Clue #1 in Europe is that employment rates are just starting to tick down. Clue #2 is the GDP growth rate, which is above zero. “We’re starting to see some acceleration. That’s great but I’m not sure it will last.”
Clue #3 is a major problem: the “sinking feeling” on Europe’s inflation numbers. To avoid Japan’s fate of 15 years of deflation, Europe has mimicked the Fed’s Quantitative Easing program by launching its own QE program in March, lowering rates to zero. It’s bought 60 billion worth of Euros and added 1.1 trillion Euros to the balance sheet, moving beyond 3 trillion. The difference is that when it started its program, the Fed only had US$800 billion on its balance sheet, with QE eventually taking it to US$4.4 trillion. “I expect the ECB will mimic that and do it in three or four tranches.”
Suspects 3 & 4: Japan & China
Busch moved on to Shinzo Abe and Xi Jinping, showing a photograph of the two shaking hands and clearly uncomfortable with each other. Clue 1 is their unemployment rates but these can be safely ignored because the numbers are clearly unknowable. China’s unemployment rate has “magically” stayed at almost exactly 4% since 2012. Japan has horrendous productivity numbers and are “like zombies in the Walking Dead: they should be firing people.”
Clue #2 is GDP. China can force its banks to lend, which it did in 2009, when its high-velocity money stimulated economic growth in areas like infrastructure and housing. This resulted in inflation heating up and commodity inflation but the country is attempting to shift to more US-like consumer spending.
In the US, consumer spending accounts for 70% of GDP, while it’s only 40 to 45% in China. “They want it higher,” Busch said, so it relies less on infrastructure spending. In both countries, politicians “tell central banks what to do.” Abe shot the three arrows of huge fiscal stimulus, massive QE and economic reform in a bid to generate 2% inflation within two years. But last month inflation in Japan was “zero, so they missed the target. It’s vastly different from QE in the ECB and US. … It’s not surprising to see their (Japan’s) stock market reach 15-year highs this week as they reaffirm the QE path, and it won’t end any time soon.”
China wants to keep its currency weak relative to the US dollar and has cut rates twice. The results have been dramatic: Chinese stocks have been on fire since September.
And the murderer is:
In his finale, Busch concluded “the dame did it.” (Yellin). While he expects the Fed will start to raise rates in June, “Nothing is going to happen.” Busch said what happens next may be similar to the 1930s, when the Fed moved rates up several times aggressively. At first, nothing happened but they kept doing it until “eventually they killed the recovery. That’s analogous to what will happen here.”
Here, Busch ran a movie clip from Sunset Boulevard. “The first time the Fed shoots the guy nothing will happen. He’ll keep walking. But the third time they shoot you, you end up face down in the pool.”
So far, they’ve not yet killed the global recovery but central banks everywhere “want all of us in this room to go as far out on the risk curve as possible.” The Fed “won’t screw up this year or the first half of 2016,” Busch predicted, “My guess is that by the second half of 2016 or first half of 2017, as Europe and China stabilize they will feel good enough to act more aggressively.”