Will Baby Boomers Drive Mkt Up or Down?

[zteamtwo]

I saw an interesting quote in Newsweek--"Every week for the next 18 years-- 88,500 baby boomers will turn 59 1/2 and become eligible to pull money out of their retirement accounts without penalty." I believe that two things can happen (A) the stock market will have a gradual decline over the next 20 years because stocks, bonds, and mutual funds will be sold or (B) the stock market will get a healthy stimulus because all the money pulled out will be spent on various things that will help companies grow profits. What do you Cramerheads think?

[deepinwonder]

Baby boomers had children and now they're having children and more and more people are moving into this country. I think this baby boomer speculation thing is way overdone.

Also don't see that people will quit investing, altogether, but a lack of trust about who is being hired on Wall Street is driving people out and will continue to, unless these investment companies start requiring more smarts and experience out of their hirees, either in life or investing or both.

Saw an article last week about how they were driving up the prices of stocks with sheer speculation on Hurricane Katrina, without even doing any homework on whether those companies they were spiking were even going to do business down there! Typical example. I hardly have anything in the market, on account of that. Mostly cash and real estate, but we are in the building business and have a lot of experience in that area. Probably will buy more land, at some point.

Also notice a lot of comments about how people pulled their money out of Wall Street, but if you look at where the Dow is now, I'm not sure that's even true.

[deepinwonder]

I would like to add that I think age really doesn't have anything to do with anything, if you see how careful and thoughtful our own Optimus is, who is a young professional. I am basically referring to some of these hedge funds who are going out of business, one by one. It's hard to believe that some of the energy hedge funds couldn't make money. We're probably better off without some of them. ;)

[zteamtwo]

Dear " deepinwonder"---How can you make a statement such as "I think this baby boomer speculation thing is way overdone"--you cannot ignore the demographic numbers. The numbers of people retiring in the next several years is huge. What they will do with their money WILL matter. You will admit, of course, that the only reason you have made money in construction is because the baby boomers are now at an age whereby they have moved on to their third, forth, or fifth house and upscaled each time. I hope you have enough economic acumen to know that inflation is going to eat your cash position BIG TIME. If you go along with me, just a little bit on demographics, I'm going to give you a big tip---put your cash into healthcare stocks--you will come out way ahead.

[deepinwonder]

Most of our friends are self employed and we have invested our money into our own businesses, rather than the businesses of others. This is far more sensible and lucrative for us.

And most of the people we build homes for are not baby boomers, either, they are our parents age and retired, because that is the kind of community we live in.

My point is that unless something is done about all this stock manipulation and short selling, it's going to be hard to convince people like us that the stock market is the place to put most of our money. So if it's not in there, how could we affect it by pulling it out? Not everyone works for someone else and has 401k plans whose funds are matched by their employers.

You have to realize, also, that my parents generation had investments they pulled out to retire with, so why all the speculation and fear about baby boomers doing the same? And some people will continue to invest in the stock market even after they retire, we have posters on here doing that, like xboilermaker.

I'm not sure I understand your attitude nor do I agree that health care is the best place to put my money. In fact, I think the cheese is about to hit the fan in that sector. :)

[deepinwonder]

>>because the baby boomers are now at an age whereby they have moved on to their third, forth, or fifth house and upscaled each time<<

I don't know anyone who has been doing that, because it's dumb. Reminds me of the commercial with the guy who seems to have everything... "How do you afford it?" He answers, "I'm in debt up to my neck."

Do you live in California, by any chance? That may be a regional behavioral pattern, I don't know.

For my health care picks re: boomers, see my post on OATS and WFMI. I liked Zimmer Holdings for knee replacements, but the govt stepped in with price controls.

[optimus25]

This is a very interesting topic and as someone who works in the industry I'd like to add my two cents.

Baby boomers, by sheer numbers alone, will be a boon to my industry, which is financial planning. I agree with deepinwonder about all the negatives going on in the market: stock manipulation, short selling manipulation, insider trading etc. Its always going to be there as it was during the early 1900's when plungers and manipulators were making money "hand over fist". Even with the regulatory agencies, such as the SEC and NASD, we can't seem to control the evils that exist in the market.

With that said, I can see why many people would be turned off by the market. Scholars in the field of Finance and Economics who follow the Efficient Market Theory suggest that the stock market is efficient, we all know that's a lot of bull $hit (pardon my language) because there are always people who are going to know things, such as inside information, that the rest of us everyday investors won't know. Its funny because even with all these evils running rampant in the market, stocks representing the S&P have still averaged over 10%. This is the main reason why I remain in equities and why I recommend to my clients ETF's and Index Funds. I still enjoy trading individual stocks of course.

Back to baby boomers. The retiring baby boomers will be moving their money away from the stock market via 401K's and other qualified retirement plans to fixed income investments to begin withdrawing assets to spend for retirement expenses. A big benefactor to all these assets would be the insurance companies writing Annuity Contracts. Will this cause the market to go down? Probably not. What most people don't realize is that the traditional retirement has changed. People are living longer and longer so baby boomers might need to keep their investments in equities after all. I'm thinking large cap, blue chip, value stocks, and dividend payers. I'm thinking some healthcare, vacation related stocks, cruise lines, and entertainment companies. The baby boomer population may or may not be a force to be reckoned with. All I know is that the boomer generation is definitely going to need some savvy financial planning.

[optimus25]

I saw an interesting quote in Newsweek--"Every week for the next 18 years-- 88,500 baby boomers will turn 59 1/2 and become eligible to pull money out of their retirement accounts without penalty." I believe that two things can happen (A) the stock market will have a gradual decline over the next 20 years because stocks, bonds, and mutual funds will be sold or (B) the stock market will get a healthy stimulus because all the money pulled out will be spent on various things that will help companies grow profits. What do you Cramerheads think?

zteamtwo,

The stock market will not be experiencing a gradual decline due to stocks, bonds, and mutual funds being sold. There are going to be other economic factors that will cause such an event to happen such as our increasing energy costs and dependence on oil which may have a negative affect on corporate profits as well as a slowdown in spending from the general public. I don't think we'll see a big pull out in retirement money right away since the trend for boomers is to live longer and longer due to our advances in medicine. Who knows it could be like that Y2K thing. That would be funny. :wink:

[deepinwonder]

It might be helpful to keep in mind that there are actually two groups in that demographic, not one, and their parents aren't normally in the same age group, either. One was born after WWII and the birth rate for that boom dropped off around 1957. The other was born in the mid 60's, when the Beatles came out. Yeah, yeah, yeah.

(Not sure why they put them both in the same category, makes no sense to me, because they aren't the same at all. Newsweek is not my first source for trusted information, either.)

[dog]

Here is the Dog's view on it...

Demographics matter. Boomers have left, or are leaving, their peak spending years. The generations that follow them are flatter along the time line. There will be a negative sum loss when you average peak spending.

This will put a squeeze on domestic commerce. The influx of immigrants is not likely to help since the US attract immigrants with low income potential and therefore low spending potential. The sum gain of peak spending will be down not up for the next 20+ years.

So where to invest? Asia. Asia had a baby boom and those babies are not starting to enter their peak spending years. US industry already knows this that is why you see so many of them scrambling to get into Asia. Follow corporate America...they know what is coming!

IMHO, the squeeze on domestic markets will start to hit harder after 2007. Companies that don't have a strong Asian presence will get left behind and tank.

It is my strong opinion that people should spend the next year or two learning about Asia and reading up on international funds.[/code]

[jm2552]

The influx of immigrants is not likely to help since the US attract immigrants with low income potential and therefore low spending potential.

True, but I would also keep in mind the impact of credit. The banks love to extend credit to just about anyone. The spending potential is still there, at least until default time. BTW, since my Yellow Lab is on a "people" medicine prescription, with my last name on the script, I completely expect to receive CC offers in his name!

[Natural Gas]

I recall Pat Paulsen's response to a similar question about overpopulation. He pointed out that he had a set of two parents. And they each had a set of two parents. And the grandparents had a set of two parents. Therefore we've gone from eight to four to two to one. He concluded the problem was taking care of itself.

[deepinwonder]

Haha, I remember that one, but thought it was George Carlin!


Demographics matter. Boomers have left, or are leaving, their peak spending years

I am not sure how you came to the conclusion that boomers have left their peak spending years, dog, since most are still in their 40's and 50's, have jobs, own businesses, have children who spend up a storm with their money, etc.

I agree with Optimus, I don't know too many boomers who are going to roll over and give up, just because they can withdraw money at 59 1/2. The one thing a lot of boomers do have in common is that they are not afraid to reinvent themselves, change careers and lifestyles as the situation demands, and if you want a typical example, he's right in front of your face... I'm talking about Cramer, boo yah!

As far as being decrepit, we personally are in a lot better shape than our parents ever were, and even more than a lot of young people (many of whom are too fat, lazy and unhealthy) because we eat better, exercise regularly, and use natural remedies for minor things, rather than popping pills with lots of side effects. My husband is a windsurfer, I do yoga and dance. My three best girlfriends are a ski instructor, a horse trainer and a mountain climber who is in the Explorer's Club.

And take a look at Cramer, did he stop spending money? He took three vacations in the past few months and is building a pool house for his kids. His wife is looking at Harleys. They didn't stop investing and neither have our own parents, who are the WWII generation. Just worry about your own bodies and your own businesses and you will be one step ahead, no matter what anyone else does. 8)

[optimus25]

Great post deepinwonder,

Thanks for the insight, its much appreciated. The face of retirement is definitely going to change since most people are going to live longer and longer. People are really taking care of themselves. I can see retirees, who have done financial planning for retirement, reinventing themselves. My father and mother in law grow cymbidium orchids and will be retiring in the next 5 years and I can see them making this hobby into a fun little business. I've also heard of retirees going into non-profit work as well as dedicating their time to helping those who are less fortunate in other countries. I'm excited to see what will happen in the next 10-15 years.

[dog]

Putting aside anecdotal stories lets consider the facts.

Studies show that peak spending occurs between 45 and 50. For example, on average, people purchase the largest home they will ever own at 43 and home purchasing drops off quickly on average as people approach 50.

The bulk of boomers will hit 49 between '05 and '09. Therefore the US is just starting to hit a period where domestic spending will start to weaken. Housing will be one leading indicator to watch over the next 5+ years.

The demographic numbers can't be changed and the aging of the boomer generation can't be stopped. The studies that I have read show no significant deviation from the expected. So the indications are that domestic US spending will drop off as we near the end of this decade.

Asia is the opposite story. Their baby boom is just coming on line in terms of spending. This is the reason so many Western corporations are fighting to get into Asia right now.

So, IMHO, the US domestic economy and stock market will face some challenges and volatility at the close of this decade and will be weak for a significant span of time following that.

[deepinwonder]

"In real life, one must look out of the window." Eugene Ionesco

[Tre]

Deep, for some reason, I think you are confusing dog’s analysis as snipe at “boomers”.

Far from it. Dog is merely pointing out the facts, patterns, and potential outcomes.

I’ve been reading up on demographics and how they effect economies and so far dog seems to be right on target. And as dog pointed out, “boomers” are not deviating from the general pattern.

This is not saying anything negative about “boomers”. What makes “boomers” special is their shear numbers that are concentrated over a small band of time. This population concentration is what has driven the concentrated effects associated with the “boomers” in the past. There is no evidence that “boomers” will all of a sudden hit the breaks and deviate from expected spending patterns.

As dog pointed out this is not a signal that there will be no investment opportunities. Just the domestic US markets will soften. Asia is a growing economic region. There are and will be plenty of opportunities to invest there.

I think a view that things can change and looking to Asia (as most big corporations are doing) is “looking out of the window”/”looking outside of the box”. Hoping that the economy or the stock market will exist in a static environment where things will just continue chugging along as they always have is “hiding in the box”.

[deepinwonder]

>>Deep, for some reason, I think you are confusing dog’s analysis as snipe at “boomers”.

Far from it. Dog is merely pointing out the facts, patterns, and potential outcomes. <<

No, I don't think he's sniping at boomers and he had every right to bring up the subject, if it worries him! I just disagree with the so-called demographers and Newsweek is not one of your more reliable sources, either. I have lived in seven states and Europe, so I've gotten around quite a bit and know a lot of boomers, as well as people in other age groups. I don't think they are facts and so I am rebutting those statements.

Also, my parents spend a lot more money than we do and so do my husband's parents, they are all still in the market, too. Their generation came of age in a boom, like yours, ours came of age in a recession when mortgage rates were 19% and unemployment was around 10%. Cramer was not the only boomer to sleep in his car, that was normal. You both probably have more money than most of us do.

That's also why many of us didn't have kids in our twenties and waited, if we had them at all. Once again, the media gets it wrong just to have something to blab about, so they can bring home a paycheck. If "self actualization" means you have work and a roof over your head, then I guess that would be true. hehe

I speak from experience, only, not statistics and I don't think you guys have as much to worry about as you may think... unless you don't take care of yourselves. That's all. ;)

[deepinwonder]

One more thing, when dog mentioned the Asian yuppie factor, it reminded me to go for SBUX, so I put it back on my ticker and jumped in when the price is right. I totally agree with both of your assessments on that and thanks for bringing it up, you guys! :D

[dog]

I didn't realize I was creating such a stir :wink:

I also don't hold Newsweek in very high regard :)