December 14, 2011
There are more arithmetic problems at the NYT. It noted that pension returns have been very low in recent years and then commented:
“Pension plans hope to make up these lost years and reach performance targets that in some cases are still set at a hopeful 7 to 8 percent a year.”
Bizarrely, the NYT seems to think that low returns in the recent past should imply low returns in the future. In fact, the exact opposite is true.
The low returns in the recent past were the result of a drop in stock prices. This means that price to earnings ratios in the stock market are much lower than in the past. That means that investors are paying much less for a dollar of future earnings now than they did 4 years ago. It would have made much more sense for the NYT to refer to 7-8 percent return assumptions as “hopeful” in 2007 than it does today.
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