Global Savings Glut

[yakers]

I have pondered that the most likely way the “market” would adjust to the boomers going into retirement would be by devaluing capital and increasing the value of goods and labor, particularly services. Its just a natural, organic response to supply & demand. I think this is something we see on this board when some posters analyze their personal inflation rate. And maybe it is part of the Global 'saving glut' http://tinyurl.com/j9onp that the Fed is talking about. So do you see this as our future, devalued capital and increased costs of services? Does that change the working/saving/investing calculations to have a successful retirement?

 

[bongo2]

Yes, and yes. You never know, everything could turn out fine, and most people on the board are of the opinion that it will. I think that the global savings glut is a real impediment to retirement in the medium future, and it is simply natural that retirement will become more difficult.

One small thing is that we don't seem to be seeing this manifest as devalued capital in the sense of equity or real estate values going down. Rather we are seeing extremely high valuations and lower yields.

In some sense retirement savings are a race. Not everyone can retire, so you need to save more than the other guy.

 

[TromboneAl]

...boomers going into retirement ...devaluing capital and increasing the value of goods and labor, particularly services.

I'm having trouble understanding this, especially the "devaluing capital" part. Could someone 'splain it to me?

 

[Mountain_Mike]

We constantly hear that we are not saving enough.... is that just people in the US?

If I have set aside funds, and if those funds are keeping up with inflation....where is the problem?

 

[ESRBob]

One small thing is that we don't seem to be seeing this manifest as devalued capital in the sense of equity or real estate values going down. Rather we are seeing extremely high valuations and lower yields.

Bongo,
interesting points -- especially about saving more than the next guy.

On the point quoted above, though -- seems to me that an excess of capital will lead directly to inflation in things like real estate -- too much capital chasing whatever the stock of real estate is will drive up prices. Put another way, if everyone has tons of cash, they'll bid up the price of the things they want. So whatever money you had and thought was enough might not be enough after all.

Interesting that we are hearing about a savings glut at the same time we're hearing americans don't save anything. Maybe it is the rest of the world that is saving. In that case, the US should be really worried.

I was looking through the Fed's new Survey of Consumer Finances recently (they have a spreadsheet macro tool for slicing and dicing things) and found that a third of familes headed by someone aged 54-65 had a half million dollars or more or net worth (includes home equity and nets out all debt including mortgage debt). That ain't so bad imho. I guess the other 2/3rds are the ones we are hearing about...

 

[macdaddy]

It's brutal out there for real estate. My family has been in the rental business since 1940. I have a few hundred thousand to 1031 this summer and I am trying to identify a place to go to purchase some more rentals. I have called around probably 20 different cities in the midwest and south and nobody has a CAP rate above 6%. I didn't even bother with California, Nevada, Arizona, Florida, or the northeast. It's ridiculous. If anyone has any suggestions, I would be all ears.

I think it's a result of exactly what was said, too much money (created in the last 5 years from easy financing) chasing too few investment opportunities, driving yields down on everything. I wonder how long it will last...

 

[Maximillion]

The ROI on Real estate is just not there, current valuations are far too high, the market is showing clear signs of softening.

Most Money on RE is made on Capital Appreciation, that is not about to happen.

There is no Investment for all Seasons, but there is a Season for all Investments.

Non US Currencies, Oil and Gas Trusts, Gold, Fine Scotch.

 

[macdaddy]

Until 6-12 months ago the ROI was there in a few areas I had my eye on. The party is not over everywhere. My first post was not entirely accurate, as I have a few places on the radar that still hold some potential. The risk factor is just increased a bit. I don't want or count on capital appreciation, I want some place I can put 30% down and earn 6.5-8% ROI as a cash flow + be protected from inflation.

 

[bongo2]

Interesting that we are hearing about a savings glut at the same time we're hearing americans don't save anything.  Maybe it is the rest of the world that is saving.  In that case, the US should be really worried.

I don't know either how to reconcile the low reported savings rate with the global flood of capital that we see today.  Foreign investing is one possiblilty.  That the savings statistics would be misleading is another.  One more is that the capital glut is created not by savings, but by increased liquidity (i.e. the fed).  Could be a combination of all or something else entirely.  I'm puzzled.

 

[Nords]

I have pondered that the most likely way the “market” would adjust to the boomers going into retirement would be by devaluing capital and increasing the value of goods and labor, particularly services. Its just a natural, organic response to supply & demand.

C'mon, we can't have it both ways.

Either the Boomers aren't saving enough, they'll never retire, and the Gen-Xers will never be able to advance their careers because of all the deadwood Boomers hogging the good jobs while simultaneously paying SS taxes, sucking Medicare dry, and hoping the SS/Medicare systems will still be there when they're 70.

Or else the Boomers are saving way too much, will all quit en masse any minute now (all 78 million of them), crash the stock markets, bankrupt thousands of businesses, and throw the Gen-Xers out of work, at which point SS & Medicare will collapse.

Pick a scenario.  But pick one and stick with it.

I suspect the truth will be somewhere in between, and the DJIA will be somewhere between 11,000 and 36,000.

It's brutal out there for real estate.  My family has been in the rental business since 1940.  I have a few hundred thousand to 1031 this summer and I am trying to identify a place to go to purchase some more rentals.

Take a look at the RealSource thread and see if you can do an end-run around their research.

 

[macdaddy]

link broken?

 

[wabmester]

I don't know either how to reconcile the low reported savings rate with the global flood of capital that we see today.  Foreign investing is one possiblilty.

Yes, foreign investment is what Bernanke means when he talks about a global savings glut.   Specifically, foreign central banks (principally Japan and China) using US equities and debt as their savings vehicle.   Also, developing nations who historically have seen wide swings in the value of their currency are now using US treasuries as ballast.

So, Bernanke says that this is the primary reason that the US has a widening current account deficit (rather than a simpler trade imbalance).    Basically, he is saying don't worry about our current account deficit.

At the same time, he has said that the current situation is not sustainable.    When foreign central banks invest in the US, that means they are not investing those funds at home.   Eventually, they'll need to put that money to use for domestic capital improvement.    It's anybody's guess how that unwinding will affect the US when it eventually happens.

 

[Maximillion]

China will pull the rug, they do not need US purchasing, 2/3 of the world's population are in China and India, and they have a very rapidly growing Middle Class.

A large part of the US defecit is due to the increase in Energy Costs, that is why Canada's Trade surplus with the US has ballooned, Oil.

 

[Nords]

link broken?

Sorry, this one:  http://early-retirement.org/forums/index.php?topic=6554.0

 

[Ed_The_Gypsy]

Excellent points, Max. True today and for the future.

The growth of the Middle Class in China and India is fueling a lot of economic activity to our benefit today and in the future. I don't think it is in China's interest to upset our applecart, though.

China has a ton of $US. They want to use that money to buy things that they want--such as Unocal. (It is still not clear to me what was wrong with that.) Thwarted there, they are buying into Canadian oil sands through Synenco, which is in the process of developing the Northern Lights Project in northern Alberta, which I think was a better investment.

Which brings us back to Canada. The future of the oil business is in Alberta in the oil sands and that is good for you and me and a lot of other folks, too.

I am betting big on Canada and Alberta in particular (for example, I work in AB). I am also investing indirectly in China's growth (Red China , not that renegade little island territory ). I have not seen a good way to invest in India's growth yet.

I have no idea how the US economy will go in the short run, which is why I diversify. If foreign-held dollars can't or won't buy US goods, then all that can happen is that non-US, but still dollar-denominated assets will inflate in price (i.e., oil--what else?). Petro dollars and Sino dollars may try to buy US companies instead. But aside from oil companies, what would they want to buy? Rockefeller Center? Pebble Beach Golf Course? It's been tried. The alternative is buy more US bonds or dollarize the world (try to pay for assets elsewhere in the world with US dollars), which has already happening. Witness Eurodollars--bonds offered by foreign banks in US dollars. What else could happen? Dunno. I have to use gummy's crystal ball and it is pretty cloudy in there.