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Personally I have a different theory. The supply/demand curve for investments is shifting as the baby boomers retire - instead of investing money they're drawin

by ojbyrne 18y ago

Personally I have a different theory. The supply/demand curve for investments is shifting as the baby boomers retire - instead of investing money they're drawing down their investments. And that means 20 years of boom for Wall St, largely driven by a huge demand for investment products, is turning into 20 years of bust as that demand turns into essentially, negative demand, because behind the comparatively wealthy cohort of baby boomers, comes a smaller, and poorer cohort (Gen-X). Yet there's still pressure to produce reasonable returns for those same baby boomers and the people following behind them. This results in increasingly risky investments being sold to people nearing retirement who are depending on the kinds of returns their parents saw.

nostrademons 18y ago
I like your theory, but I'm not sure it'll stand up to (future) history. Baby boomers aren't retiring - instead, many plan to work until they drop dead, either because they have no retirement savings (and hence can't withdraw them) or because they have jobs that they enjoy and can remain effective in even until old age. The latter group of people are most likely to have significant retirement savings, so they may just end up passing their assets to their kids. A lot of predicted demographic time-bombs may not materialize because of this. The social security crisis may be a nonissue - if every retiree worked just 2-3 years more, social security remains solvent for the forseeable future, and many retirees plan to work more than 2-3 years into retirement age.
- ojbyrne 18y ago
  I like your theory too, though I fear it may be wishful thinking. Those that do continue working are working at lower-paying jobs, and continue drawing down their savings. And if the jobs aren't that much lower status (i.e. McJobs) then they just put more pressure on the income of the generation behind them. But certainly demographics have failed to predict the future in the past, and personally, I'm amazed at what's happened to my income in the past 5 years or so (I'm in my 40s and saving like mad - though all in cash right now).
  - nostrademons 18y ago
    I'm thinking of my mom, who retired as a teacher and then took another job as a consultant training teachers. Many of her friends and former coworkers have done the same thing. If they were a lawyer, they retired and took a job in a different field of law. If they were a principal, they started a new school. If they were a doctor - well, they're still working. These aren't lower income people - their incomes are often well into 6-figures. The more interesting trend, as you mention, is what this is doing to the career opportunities of the next generation. Since boomers aren't retiring, the top jobs in many organizations aren't opening up. And so many people my age and slightly older (I'm a very early Millenial) believe there's no possibility for advancement on the corporate ladder. Hence the recent trend towards entrepreneurship among young Gen-Xers and Millenials. Whether this results in a net inflow or outflow in the capital markets depends on the real economic growth of all these startups. If they really do open new markets, then the economy expands, more money flows into savings, and the stock market keeps going up. If they don't, then the non-retirement of boomers just means a transfer of savings rates from the young to the old. Boomers won't have trouble supporting themselves in old age, but they'll have to support their kids.
    - ojbyrne 18y ago
      Personal experiences probably determine our view of things. I think this because my parents are a single-income family. My dad rose to president of his company, which suddenly went bankrupt, and he ended up (in his early sixties) starting his own company to take over the government contracts that the previous company depended on (I helped write the business plan for that company). Most of his retirement fund came from the last few years (president + own company). Now he's moved onto a second career - namely harvesting the discretionary income of the other golfers at his club (some of them 20 years younger). ;-) He did teach me that entrepreneurship is a lifelong pursuit.
  - nostrademons 18y ago
    BTW, it's curious that you're all in cash right now. I am too, as is my sister, as are most of my highly-paid college friends, as were a bunch of former coworkers (one quite wealthy - 3 successful startups) I talked to in late 2007 just as this broke. I think mattmaroon posted here once that he was all in cash, as have a few other folks, as have lots of people on Reddit. I'm thinking there's actually a large pool of cash sitting on the sidelines, from people that didn't drink the Kool-Aid during the 04-07 boomlet. And once there's a signal that this has bottomed out - maybe it'll be Dow 10K, or S&P 1K, or the bankruptcy of the last of the big-5 investment banks - all that cash is going to come flooding back into the market, and they'll be a big pop in stock prices. I'm waiting a bit - I think there's still more bad news that hasn't been factored into the market. But it may be time to start buying soon.
bokonist 18y ago
I think there is a lot of truth to this. From the early 80's to the present, individuals, pension funds, and endowments moved savings from bonds and savings accounts into the stock market. I believe this reallocation caused a one time run up in stock prices. In the process, people grew so used to price appreciation that dividends disappeared. Since, traditionally most of the value of owning stock comes from dividends, I expect stocks to under perform until dividends return.
- helveticaman 18y ago
  Agreed. After a number of thought experiments involving dragons that hoard gold, defunct Buddhist temple construction companies, and irrational exhuberance, I came to the conclusion that owning stock makes no sense if there are no dividends.
  - quasimojo 18y ago
    i am probably more bearish than anyone here, but there is no evidence that dividend-bearing stocks do better over any meaningful timeframe
    - deleted 18y ago
      [deleted]
    - helveticaman 18y ago
      The question is not one of doing better, but of inevitability; for a company's stock to be worth anything, it has to pay profits out to the stockholder. This can mean dividends or an eventual lump sum when the company winds down. The problem is the latter never happens because companies never want to admit they are dying. On top of that, every company dies; just in 2006 the oldest company in the world, Kongo Gumi, went under after operating continuously since 578. The stock price is, in theory, the net present value of the stream of earnings its bearer will receive. So if no company will ever pay significant monies when it winds down, that leaves dividends (edit: now that I think about it, getting acquired counts too). I have no evidence to show dividend-bearing stocks outperform their counterparts, but my point is that those counterparts are overvalued. If a company will never be bought, will never pay dividends, and will never wind down operations rather than face bankruptcy, the net present value of its stock is therefore 0. *http://en.wikipedia.org/wiki/Kong%C5%8D_Gumi http://en.wikipedia.org/wiki/Kong%C5%8D_Gumi
quasimojo 18y ago
wrong. most boomers are still in fixed retirements. some of those pension fund managers got suckered into subprime, but not many
deleted 18y ago
[deleted]
eru 18y ago
Capital markets do not stop at borders. The American/European baby boomers are not as important may not be as important as they seem.
- eru 18y ago
  Please pardon my garbled post. I did not edit carefully enough.
kingkongrevenge 18y ago
> The supply/demand curve for investments is shifting as the baby boomers retire It's well researched that the number of 45 year olds is a major important economic variable. They're at their peak earning, investing, and consuming stage. Japan's baby boomer 45 year old peak came a bit over ten years before ours, which is passing now. Not a good sign considering what has happened in Japan.

by ojbyrne 18y ago

nostrademons 18y ago

I like your theory, but I'm not sure it'll stand up to (future) history. Baby boomers aren't retiring - instead, many plan to work until they drop dead, either because they have no retirement savings (and hence can't withdraw them) or because they have jobs that they enjoy and can remain effective in even until old age. The latter group of people are most likely to have significant retirement savings, so they may just end up passing their assets to their kids. A lot of predicted demographic time-bombs may not materialize because of this. The social security crisis may be a nonissue - if every retiree worked just 2-3 years more, social security remains solvent for the forseeable future, and many retirees plan to work more than 2-3 years into retirement age.

ojbyrne 18y ago
I like your theory too, though I fear it may be wishful thinking. Those that do continue working are working at lower-paying jobs, and continue drawing down their savings. And if the jobs aren't that much lower status (i.e. McJobs) then they just put more pressure on the income of the generation behind them. But certainly demographics have failed to predict the future in the past, and personally, I'm amazed at what's happened to my income in the past 5 years or so (I'm in my 40s and saving like mad - though all in cash right now).
- nostrademons 18y ago
  I'm thinking of my mom, who retired as a teacher and then took another job as a consultant training teachers. Many of her friends and former coworkers have done the same thing. If they were a lawyer, they retired and took a job in a different field of law. If they were a principal, they started a new school. If they were a doctor - well, they're still working. These aren't lower income people - their incomes are often well into 6-figures. The more interesting trend, as you mention, is what this is doing to the career opportunities of the next generation. Since boomers aren't retiring, the top jobs in many organizations aren't opening up. And so many people my age and slightly older (I'm a very early Millenial) believe there's no possibility for advancement on the corporate ladder. Hence the recent trend towards entrepreneurship among young Gen-Xers and Millenials. Whether this results in a net inflow or outflow in the capital markets depends on the real economic growth of all these startups. If they really do open new markets, then the economy expands, more money flows into savings, and the stock market keeps going up. If they don't, then the non-retirement of boomers just means a transfer of savings rates from the young to the old. Boomers won't have trouble supporting themselves in old age, but they'll have to support their kids.
  - ojbyrne 18y ago
    Personal experiences probably determine our view of things. I think this because my parents are a single-income family. My dad rose to president of his company, which suddenly went bankrupt, and he ended up (in his early sixties) starting his own company to take over the government contracts that the previous company depended on (I helped write the business plan for that company). Most of his retirement fund came from the last few years (president + own company). Now he's moved onto a second career - namely harvesting the discretionary income of the other golfers at his club (some of them 20 years younger). ;-) He did teach me that entrepreneurship is a lifelong pursuit.
- nostrademons 18y ago
  BTW, it's curious that you're all in cash right now. I am too, as is my sister, as are most of my highly-paid college friends, as were a bunch of former coworkers (one quite wealthy - 3 successful startups) I talked to in late 2007 just as this broke. I think mattmaroon posted here once that he was all in cash, as have a few other folks, as have lots of people on Reddit. I'm thinking there's actually a large pool of cash sitting on the sidelines, from people that didn't drink the Kool-Aid during the 04-07 boomlet. And once there's a signal that this has bottomed out - maybe it'll be Dow 10K, or S&P 1K, or the bankruptcy of the last of the big-5 investment banks - all that cash is going to come flooding back into the market, and they'll be a big pop in stock prices. I'm waiting a bit - I think there's still more bad news that hasn't been factored into the market. But it may be time to start buying soon.

bokonist 18y ago

I think there is a lot of truth to this. From the early 80's to the present, individuals, pension funds, and endowments moved savings from bonds and savings accounts into the stock market. I believe this reallocation caused a one time run up in stock prices. In the process, people grew so used to price appreciation that dividends disappeared. Since, traditionally most of the value of owning stock comes from dividends, I expect stocks to under perform until dividends return.

helveticaman 18y ago
Agreed. After a number of thought experiments involving dragons that hoard gold, defunct Buddhist temple construction companies, and irrational exhuberance, I came to the conclusion that owning stock makes no sense if there are no dividends.
- quasimojo 18y ago
  i am probably more bearish than anyone here, but there is no evidence that dividend-bearing stocks do better over any meaningful timeframe
  - deleted 18y ago
    [deleted]
  - helveticaman 18y ago
    The question is not one of doing better, but of inevitability; for a company's stock to be worth anything, it has to pay profits out to the stockholder. This can mean dividends or an eventual lump sum when the company winds down. The problem is the latter never happens because companies never want to admit they are dying. On top of that, every company dies; just in 2006 the oldest company in the world, Kongo Gumi, went under after operating continuously since 578. The stock price is, in theory, the net present value of the stream of earnings its bearer will receive. So if no company will ever pay significant monies when it winds down, that leaves dividends (edit: now that I think about it, getting acquired counts too). I have no evidence to show dividend-bearing stocks outperform their counterparts, but my point is that those counterparts are overvalued. If a company will never be bought, will never pay dividends, and will never wind down operations rather than face bankruptcy, the net present value of its stock is therefore 0. *http://en.wikipedia.org/wiki/Kong%C5%8D_Gumi http://en.wikipedia.org/wiki/Kong%C5%8D_Gumi

quasimojo 18y ago

wrong. most boomers are still in fixed retirements. some of those pension fund managers got suckered into subprime, but not many

deleted 18y ago

[deleted]

eru 18y ago

Capital markets do not stop at borders. The American/European baby boomers are not as important may not be as important as they seem.

eru 18y ago
Please pardon my garbled post. I did not edit carefully enough.

kingkongrevenge 18y ago

> The supply/demand curve for investments is shifting as the baby boomers retire It's well researched that the number of 45 year olds is a major important economic variable. They're at their peak earning, investing, and consuming stage. Japan's baby boomer 45 year old peak came a bit over ten years before ours, which is passing now. Not a good sign considering what has happened in Japan.