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BOOMERS = MARKET CRASH?
Old 05-28-2004, 01:15 PM   #1
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BOOMERS = MARKET CRASH?

I've seen articles in the media on on the web re: the 80 million-plus baby boomers who will draw fortunes from our equities markets as they approach age 70-1/2 (year 2015 and on).
Any opinions on this?
I'm 38 and planning ER in 2020 (age 54), and find this scary. We're currently invested 80% stocks/20% bonds.

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Re: BOOMERS = MARKET CRASH?
Old 05-28-2004, 02:43 PM   #2
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Re: BOOMERS = MARKET CRASH?

Boomers withdrawing money could lead to P/E multiple contraction. Another factor, when people get older, they tend to spend less. Boomer spending has helped corporate profits to grow at a pretty good pace. When the boomers retire, they may spend less, and thus corporate profit growth could slow down. This could make US stocks less attractive to foreign investors, further compounding the problem.

Balanced against this is technology continuing to improve US productivity, and immigration could partly balance the small size of the baby bust generation.
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Re: BOOMERS = MARKET CRASH?
Old 05-28-2004, 03:19 PM   #3
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Re: BOOMERS = MARKET CRASH?

I first heard about this possible future problem about 10 years ago and I admit that *there must be something to it. *The math alone indicates that sooner or later the boomers are going to have to sell their holdings. But when you look at it a little deeper you can see that the boomers can not possibly consume all that they have saved or inherited so when 70 1/2 rolls around many will be exchanging sheltered investments for the same investment but no longer tax deferred (after paying tax). *Sure some of the money will be consumed but that will be good for the economy won't it?

This long-term planning is giving me a heahache, think I'll have a martini.
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Re: BOOMERS = MARKET CRASH?
Old 05-28-2004, 03:34 PM   #4
 
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Re: BOOMERS = MARKET CRASH?

My take on this is the numbers of the boomers don't really apply to this situation. From the statistics most have not saved all that much and will continue to work until they are dead.

I've read that the wealth is concentrated in the hands of a smaller percentage. Those folks will be selling some securities, but not all at once and not at the same time.

Also, a lot of investors do not come from the U.S. - and the world population is growing. So this massive ponzi scheme still remains intact.
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Re: BOOMERS = MARKET CRASH?
Old 05-28-2004, 07:01 PM   #5
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Re: BOOMERS = MARKET CRASH?

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most have not saved all that much and will continue to work until they are dead
That appears to be what's happening in Japan, the population of which boomed before ours did. As I've said before, to see the future of the US, just watch Japan and Germany in the coming years.
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Re: BOOMERS = MARKET CRASH?
Old 05-28-2004, 10:56 PM   #6
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Re: BOOMERS = MARKET CRASH?

Also take a look at http://www.csis.org/gai/aging_index.pdf for an analysis of the coming crisis. Not quite a market analysis, but includes some points on why Japan is not so bad off because of low entitlements. FritzRick might make the opposite conclusion that the authors of the above papers make. Low entitlements lead to higher savings drains, which makes the market crash hypothesis worse.

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Re: BOOMERS = MARKET CRASH?
Old 05-29-2004, 02:04 AM   #7
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Re: BOOMERS = MARKET CRASH?

Quote:
Also, a lot of investors do not come from the U.S. - and the world population is growing. So this massive ponzi scheme still remains intact
I'm with you CT, if the world's population peaks at 12 billion (read that someplace) we should have no worries. That's what I tell myself anyway....

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Re: BOOMERS = MARKET CRASH?
Old 05-29-2004, 11:59 AM   #8
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Re: BOOMERS = MARKET CRASH?

That was an interesting report, although it mostly seemed to be from the perspective of government expenditures. It listed the main problem for the US as run away health care costs.
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Re: BOOMERS = MARKET CRASH?
Old 05-29-2004, 12:07 PM   #9
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Re: BOOMERS = MARKET CRASH?

Quote:
I've read that the wealth is concentrated in the hands of a smaller percentage. Those folks will be selling some securities, but not all at once and not at the same time.
This is true, most equities have always been owned by a small percentage of the population. What has changed in the last few decades is the percentage of equities owned by retirement plans. This has grown from an insignificant number to 25% of all US equities. SInce the average 401k balance is very small, these accounts are likely to be tapped at a goodly rate. Defined benefit plans tend to be concentrated in older industries with a large ratio of retirees to workers, and so will likely need to tap their reserves in a meaningful way when boomers retire.

It is this 25% of equity owned by retirement plans that is different from the past. To the extent that this sub group may have contributed to today's valuation levels, it may have an opposite effect as boomer's cash out.
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Re: BOOMERS = MARKET CRASH?
Old 05-30-2004, 07:52 AM   #10
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Re: BOOMERS = MARKET CRASH?

Quote:
That was an interesting report, although it mostly seemed to be from the perspective of government expenditures. It listed the main problem for the US as run away health care costs.

Quite true. As usual I was overly terse in my comments on it. What I was referring to in regard to this thread was the individual wealth vs. goverment support differences among countries. The report put Japan at risk because of demographics, but then upgraded it's outlook for Japan because of the relatively stingy goverment entitlements and higher individual wealth.

FritzRick's comments were that people drawing down on their wealth as they age could cause a market crisis. If so, Japan could be worse off in the future since individual wealth is a bigger piece of the elderly support system. However, given their recent decade of market troubles the elderly drawing down savings may not be a key factor.

So FritzRick and the report I quoted are looking at different aspects of individual wealth, and those different aspects are good in one case (government costs) and bad in another (drawing out of equities markets). The reality is that there are so many interacting factors and unknowns, that all of these studies seem to me to be little more than educated guesses. Although I do not want to belittle their uses at examining risks and looking for ways to mitigate those risks as that is a very key benefit of studies like those.


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Re: BOOMERS = MARKET CRASH?
Old 05-30-2004, 08:31 AM   #11
 
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Re: BOOMERS = MARKET CRASH?

So what if boomers start selling their equities? What will they do with the cash? They will buy boats, cars, go out to eat more and do other things that will put the money right back in the economy. Plus they will be paying capital gains taxes on the sale of those equities which will help fund social security and spread the wealth around the country.
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Re: BOOMERS = MARKET CRASH?
Old 05-30-2004, 09:19 AM   #12
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Re: BOOMERS = MARKET CRASH?

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However, given their recent decade of market troubles...
I guess this is the whole point. Japan's older baby boom is already retired, and their market has been in a decade long bear market. If Japan is our future, will we have a decade long bear also?
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Re: BOOMERS = MARKET CRASH?
Old 05-31-2004, 09:00 AM   #13
 
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Re: BOOMERS = MARKET CRASH?

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If Japan is our future, will we have a decade long bear also?
We have many more immigrants coming into our country than Japan does. Also Japan's labor is very expensive and ours is getting cheaper by the day. I also think that the U.S. is much more diversified than Japan.

There are plenty of jobs in the U.S.A today. They are the $10 an hour variety. U.S. capitalists need cheap labor, and immigration should provide this.

I believe our standard of living will fall in the future. After all we have had the highest in the World for over half a century, and things tend to equalize. *Most other countries have a few of the very wealthy and many poor. I believe that the U.S. is heading in this direction, and the vast middle class that we have had is becoming a poorer one.

To me our stock market looks far stronger than the fate of the average U.S. citizen.
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Re: BOOMERS = MARKET CRASH?
Old 05-31-2004, 11:25 AM   #14
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Re: BOOMERS = MARKET CRASH?

Quote:
I believe our standard of living will fall in the future.
I suspect that you are right. My father supported our family on his wages alone. Both of my sisters have had to work to help make ends meet, as well as my sister in law. I suspect that the standard of living has already started to fall for the average American. It has just been masked by the 2 earner couple.
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Re: BOOMERS = MARKET CRASH?
Old 05-31-2004, 08:57 PM   #15
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Re: BOOMERS = MARKET CRASH?

Quote:

I suspect that you are right. My father supported our family on his wages alone.
So did my dad. But he had a side business during tax season. We had a garden, canned some stuff, froze some, and ate from it. Eating out was a real treat, we didn't do it more than once a month except on vacation. We had one car for a long time.

I recently read an article, I don't recall where, that broke down the real salary of a second earner, with kids. After day care or after school care, extra eating out costs(tight on time), taxes, clothing and transportation costs(for the job), the average second earner was not really making much. The average person was working for just dollars an hour, if that. I think the two earner family is almost as much a lifestyle choice as it is a necessity. However for two professional, high income earners it probably works out better.


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Re:  In defense of a second income
Old 05-31-2004, 09:52 PM   #16
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Re:  In defense of a second income

Business Week examined the two-income couple a few years ago. Sure enough they confirmed after all the extra costs of childcare, commuting, home chores, etc the second worker (vast majority women) were getting paid less for their gender and even under minimum wage.

So why do it? In two words-- work experience. These (mostly) women were usually "underwater" for a period of one-five years before their experience gave them higher wages... in many cases higher than their spouses.

BW was forced to conclude that, in view of high divorce rates, having one's own career was wise for both sides of the marriage.

In my active-duty days and as a newbie parent, I was struck by the similarities between raising a baby and briefing flag officers. For those women brave enough to re-enter the workforce while simultaneously raising kids and running a home, is it any wonder that they were skilled negotiators & tireless workers?
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Re: BOOMERS = MARKET CRASH?
Old 06-01-2004, 02:10 AM   #17
 
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Re: BOOMERS = MARKET CRASH?

>>However for two professional, high income earners it probably works out better.


Better for who? Certainly not for the kids...most of the higher income, 2 worker families I know sacrifice time with their kids, time with their spouses and time to kick back and relax, for a high paying job that simply lets them consume more and have a house full of shiny new crap....if kids were old enough to make an informed choice I would bet 99.5% of them would give up all that "stuff" to have at least one of the parents home all the time...and it doesn't necessarily need to be the wife/mother. Most of these work-aholics families delude themselves into thinking that they are making a sacrifice "for their families"...bullsh*t....it is EASIER to go to work than stay home and raise your kids...without a doubt.

Now there are plenty of families where both parents HAVE to work just to keep a roof over their heads and food on the table...these people I have no problem with...but those folks where both parents are pulling in high salaries are just plain selfish if they insist on having kids anyway and then sticking them in daycare so they can keep on working.

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Re: BOOMERS = MARKET CRASH?
Old 06-01-2004, 04:00 AM   #18
 
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Re: BOOMERS = MARKET CRASH?

I agree with "guest" about having kids and then sticking them in daycare so both parents can buy more "stuff". Even as ambitious and full of avarice
as I was, I never wanted my wife to work until the kids were at least in school. Some of these "2 high earner -
stick the kids in daycare" folks are simply ignorant IMHO.
They see what they are doing as normal and necessary.
A lot of them will come to see the light eventually.
Unfortunately, it will be too late to change how their
children were raised.

John Galt
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Re: BOOMERS = MARKET CRASH?
Old 06-01-2004, 06:20 AM   #19
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Re: BOOMERS = MARKET CRASH?

Hello Guest,

Wow. First day at home with the two kids for me today. I'm taking a little family leave act time away from my job so my wife could go back to work and finish out the school year. I wish you had posted earlier so my family could have benefited from your wisdom...

Do you have anything else to add or did you just sign on to share your moronic rant with us?

Chris
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Re: BOOMERS = MARKET CRASH?
Old 06-01-2004, 11:36 AM   #20
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Re: BOOMERS = MARKET CRASH?

Guest:

I found your post to be very wise.

Dont mind the rude remarks from those who otherwise add no value. Perhaps you struck a little too close to home.
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