The stocks to avoid if deflation strikes

Curious how many of these are the 'defensive' stocks we are all supposed to hold - partly because their high dividends can ameliorate stock market falls. But if they have to pay off pension deficits, will they be able to maintain dividends?

The top 10 probably all took pension fund payment holidays when allowed to do so. A pity their advisors failed to take note of demographics that have been clear to anyone excercising common sense for at least 40 years

Conversely, if inflation dominates these are the very stocks to hold, as inflation shrinks the true cost of their pension liabilities.

It does not help that the word " inflation " has multiple meanings, ranging from currency debasement to expanding levels of economic activity.

My guess is that we will have reduced levels of economic activity running in parallel to currency debasement - "stag-flation" as it was called in the 1970s, and I won't be reducing any of my holdings in the above listed stocks.

But, if inflation is pushed above 5% then the deficit is pushed down as (generally) the funds only index at a max of between just 2.5 and 5%. In the extreme (or may be not so extreme) if RPI were to average 10% for 12 years the pension liabilities will halve.

A few years back when Northern Telecom went bust I received a letter to say the pension fund was underfunded and that I would received a reduced pension. Why cannot these companies revise pension expectations downward i.e. to levels they can afford?

The companies which took pension contribution holidays were usually forced to do so by HMRC which forbade "over-funding" of pension schemes as a tax dodge.

Well prices appear to be creeping up in the supermarkets, petrol doesn't go down in price (thanks in part to the excessive taxation). Far-Eastern goods remain deflated (but for how long)? We currently seem to have stagnating austeric and shrinking economies (hardly the stuff of recovery). So stagflation appears to be the norm for the forseeable future! I do not believe in reality you can have a jobless recovery, the two are simply mutually exclusive.

When the banks went bust, they should have been allowed to go under like any other business. This is the price of failure for any business endeavour that is neither prudent, productive nor profitable. New shiny banks should then have been created (overnight). By transferring taxpayers money to rescue the bankrupt simply drags us all down. I still consider quantative easing a crime against its people. It just goes to prove that there is and was an us and them mentality. This sort of classist attitude is precisely what sparked the beheadings in the French Revolution. Nothing more than common thieves dressed in robes. The saddest part is that the retail and investment banks should never have existed as one. If our governments won't maintain a stable and honest system, then chaos will ensue and blood will certainly spill. It seems that even as we have entered the 21st century wisdom and common sense have been allowed to fall by the wayside. We are in essence going backwards, doomed to repeat the failures of the past only now with a high tech spin.

Nigel Clark asks why these companies cannot revise pension expectations downward - speaking as a pensions lawyer, it is because the legislation does not allow them to do so. Nortel's UK pension scheme is now in the assessment period for the Pension Protection Fund, and Mr Clark will probably get his pension topped-up - but the PPF is funded by levies from all the other UK pension schemes, which adds to their cost burden.

In any case, just try "revising pension expectations downwards", and see how the unions react. Winter of discontent? You ain't seen nothin' yet . . . . . .

I think the deflation risk is massively overstated. Bernake is warming up the Fed's printing presses and Mervyn King has the B of E banknote printers on standby. Govt's and the financial community have long since decided (as evidenced by actions) that inflating our way out of debt is the way to go. Bad news for savers and those on fixed incomes. Zero interest credit cards and balance transfers are making a big come back right now. Is that not how we got into this mess in the first place?

where is the data taken from?

Inflation - the government ally !

Moderate inflation, low enough to keep wage demand in check, has always been a governments friend. The inflationery effect of printing money is an effective means of sneaky taxation on savings.

If the chancellor cannot pick your pocket openly, making new money that ultimately is underwritten from the reduced value of inflated savings, will transfer value out of stored money and back to the treasury. Openly levied taxes are percentage based anyway so revenues automaticaly keep pace.

I wait to see to what extent the 'independant' B.o.E. is permitted to control inflationery pressues without interference.

Can someone comment on the data presented to us in the above article. The table shows 'pension liabilites' and not pension fund deficits so presumably there are pension assets offsetting these liabilities. So what is the funding shortfall or deficit of these schemes. There is a world of difference between a deficit and a liability.

And the culprits are:-

1. The last Conservative administration; clawing back excesses (they thought) as if there would never be a downturn.

2. Gordon Brown/Balls/Bliar and the Labour government generally. The pensions raid in 1997 et seq, ensuring that the civil service and MPs were totally unaffected in their pensions. Deliberately done, anybody in the public sector was ring fenced (except the local authority pension funds which were exposed to the market, but then they could always raise rates to make good the shortfall).

3. Bankers and mortgage lenders for failing to see the South Sea bubble. Let us not forget the inactivity of the Bliar government and its failure to control Brown Balls. But then that was part of the deal (leadership succession).

4. Last, but not least, the feckless borrowers who drop out when things go south, and no hope of being able to keep up with their repayments, much encouraged by 2 & 3.

The valuations required by HMRC took a look at the values at the time, and totally disregarded future downturns, gave no margin for fluctuations, something which has happened since time immemorial. After good times, there are always bad times, 7 good years/7 bad years.

As regards the various companies, them at the top well paying themselves bonuses whilst allowing the pension funds to go into "deficit". Fabulous pensions for them, but to hell with the hoi polloi. Better that they had foregone their bonuses and those to staff because they were a highly selective, bonuses were paid at the expense of making up shortfalls to the pension fund serving all. Dereliction of duty, almost certainly.

As for the worst on the list, they are the ones who have been paying some of the biggest bonuses, particularly the banks, when in reality the bonuses should have been going to reduce the pension deficits. In reality, not only did they rob the shareholders, but they were discriminating against the "Indians" who did all the donkey work which they took advantage of by paying themselves benefits whilst ignoring the obligations to the pensions of the "Indians".

Just in case somebody thinks I'm being racist, reflect on the old adage "too many Indians, not enough chiefs".

The government wanted money, and would do anything to get money. However, now that there is a deficit, they are not repaying the money they took in tax. The "chiefs" are hanging on to their ill gotten gains (bonuses) as well.

One figure that is missing from this article is the government pension liability, which makes all the above figures look like chicken feed, even when combined.

gordon saw to this he could not keep his paws of the private pensions this is why a lot of companies took holidays gordon wanted to tax the over spills.

terry shead