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MYTH boomers will crash the market

Discussion in 'Investing/Trading/Cryptocurrency/Altcoins' started by tchandy, Oct 11, 2007.

  1. tchandy
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    tchandy Contributor Read Millionaire Fastlane

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    I think this post I found on CNN on the wall street market is similar to what Rich Dad said about real estate in the Prophecy. I never read the book but only heard about the main idea. I don't think that boomers will crash the market when they retire. You just have to know how to beat the market and not work with it.

    MYTH
    Boomers will crash the market
    Cross a stock market Armageddon off your list of fears. No question, the retirement of tens of millions of boomers in the coming decades will have a major impact on everything from health care (count on surging demand) to real estate (good-bye, suburbs, hello, beach house). And, the thinking goes, the generation that loaded up on stocks as they saved for retirement will crash the market once they sell those shares to pay for retirement.

    Here's why that's not true.

    Stock ownership is extremely concentrated among the very highest income brackets - those in the top 10% hold 68% of financial assets, according to a 2006 study by the Government Accountability Office. These wealthy investors are unlikely to be so strapped for cash that they have to sell their shares in a hurry. Instead, says George Walper, co-author of "Get Rich, Stay Rich, Pass It On," most affluent families intend to preserve assets for their heirs. Moreover, many baby boomers plan to stay in the work force longer than an earlier generation did, even into retirement, which would further reduce the need to sell shares abruptly.

    Tom
     
  2. china
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    china New Contributor

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    I think the market will crash with or without Boomers. This is due to too much money in the markets, credit/liquidity and the asset price run-ups we've had for the last 20 years. The Fed has pumped in money to keep the economy going. Now the Fed wants to take the punch bowl away. The Fed will save the banks before it ever saves investors.

    One thing you have to remember when it comes to any asset and the valuation: EVERYBODY doesn't have to sell to bring the prices down. All you need is a larger group of sellers than there are buyers. If a lot of Boomers want to sell but not a lot of other people want to buy -- prices will fall.

    This could actually be good news to those of other generations since it means houses, stocks, etc. will be cheaper to buy.
     
  3. piranha526
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    Tom, I agree 100%!
    If the markets crash, it won't be because of boomers. Let's not forget about immigration. Another 100 million people will be flooding our borders, also absorbing some of the little blow boomers will have on the markets.

    Doom and gloomers still think otherwise. Our country's debt will cause a crash long before any boomer will! However, if you think about it, the boomers will cause the crash, just not in the way we all think!!! :smxB: BOOMER "GOV'T" SPENDERS!
     
  4. RAiMA
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    Not saying if it will or won't happen. Just have a plan ready if it does so if it ever happens, you can calmly execute the plan. Most people who will be unprepared will panic.
     
  5. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    I'm with RAiMA:

    Whatever happens with markets, up-down-inside out-bankrupt-or even CRASHED-- the rich will stay rich.

    Why?

    Because when the rules change, the rich are the ones who learn the new rules or (even better) have a plan in place for this change, and move quickly to accomodate the change.

    I sat on the RD forums for YEARS hearing people talk about how this was not the time to buy RE (they were saying this in 2003, 2004). We bought. We sold.

    We continue to buy.

    We've made millions while these other guys were waiting for the "perfect time to buy".

    Bottom line, if you wait for the perfect opportunity, it'll never happen.

    Instead, look at what's out there- NOW, today, and try to figure out a way to make TODAY's opportunities pay off for you.

    Easy to say. Harder to do.

    But not impossible. Especially if you work at it. :)

    -Russ H.
     
  6. randallg99
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    randallg99 Bronze Contributor

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    I began doubting the doom and gloom scenario... (btw, why does TiVO record Barney at 3am even though it has 3 thumbs down?... sucks when it switches channels on me... not to mention my daughter pressed in one of the buttons on the remote and now its malfunctioning)

    There is a huge disconnect between the equities market and the health of the economy... while I agree a crash is looming and a perfect storm is brewing, we are in the midst of a massive bull run despite the following-

    1. record utility pricing pressure on consumer
    2. negative hh savings rate
    3. increasing consumer products prices
    4. mortage company blow up
    5. record rate of foreclosures
    6. diminishing dollars purchasing power

    so yes, there are some serious problems and the above reasons mean little anymore to the companies with large overseas exposure... I read recently that large part of major indices are comprised of international companies with very large dependency on overseas sales and production. (this is no secret) and as world economies grow significantly, these mentioned companies are reaping some of the largest rewards ever.

    my view is there is more long term risk in the bond market at this juncture since the US debt levels has beome an unrealistic payoff figure... an increase in corporate taxes just may be the nail in the coffin the doom and gloomers are anticipating... taxes will hurt profits and stock market alike.

    thats my 2 cents and my sentiment toward the market isnt even worth just that...

    but Russ hits the nail on the head... I knew of a couple who sold their home in 2002 and rented an apartment after a large run up in real estate prices in anticipation of a sell off...

    thats what we confidently call a `schmuck`

    its how we are prepared for the markets... ups or downs. We make investments based on risk/reward ratios despite and inclusive macro/microeconomic dynamics. We already know how we are going to adjust our real estate and equity investments because we already analyzed worst case scenarios entering the positions.

    unfortunately, only a few select investors ever take the time to analyze the risk/reward ratio under different scenarios.
     
  7. china
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    Not always. Ever hear of ghost towns? :dead:
     
  8. china
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    china New Contributor

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    Oh Russ, Russ, Russ,

    What am I going to do with you? I think I argued with you on the Rich Dad boards, now I am going to argue with you here.

    The rich don't necessarily stay rich -- especially if they aren't smart and sharp. A lot of the rich will go down in flames just like everyone else.

    I make my living off the rich that go down in flames. I could tell you stories... but I won't because I suppose I should keep my lip zipped if I want to continue to do business -- but I could tell you stories!!!!!

    Yeah, some of the rich stay rich. Some of the rich are still sitting back with Ronald Reagan drinking expensive whiskey and talking the night away while comparing their handcrafted goldplated inscribed handguns.

    The rich stay rich. Uh-huh. :rolleyes:
     
  9. china
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    china New Contributor

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    Really? That's interesting because I think they might have been quite smart.

    I might call you the "schmuck" and them the "intelligent investors."

    ??? There is really no way to prove either of us wrong for a few years but I'll bet you a shot down the road. ;)
     
  10. china
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    china New Contributor

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    Russ,

    I can make money any day of the week from some high-flying wheeler/dealer who suddenly discovered his mastercard had limits. Rich people get their houses foreclosed on just like the poor ones when they don't pay the mortgage!!

    To imagine that the rich are somehow superior -- at least here in California -- is ridiculous!! There are SOOOOOO many bozos running around with tons of money in their hands! Status! Style! Shoes! Every one of those things cost MONEY! And every single friggin' rich person around here has to have them all! Why do you think Manolo the Shoeblogger makes so much money? Because people need to buy $700 shoes!!

    At any rate, forgive me. I momentarily lost my mind when someone suggested that the rich people were somehow superior to everyone else.

    Yes, they are superior. When they go bankrupt, they claim millions of dollars in debt, versus the few thousands most people claim.
     
  11. tchandy
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    tchandy Contributor Read Millionaire Fastlane

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    I have to agre with Randall. :iagree: I think no matter now bad the market can get it is still possible to beat the market even if the boomers retire. It's not an easy task but you have to be invested in the right sector (s) of the market. I doubt they'll cash out ALL of their money at once. They are investors just like we are. They have money in there because they want to make more money. Why would they pull it out to put in a bank account?

    Tom
     
  12. randallg99
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    you are on for that bet. these people lost a lot of net worth because of their decision making... I call them schmucks. You can call me a schmuck if you want to, but I made a significant amount of money in form of cash flow and equity in the past few years from real estate.

    everyone is right at one point or another... even a broken clock is right 2 times a day... and these `schmucks` sold their house just when the real estate market began its ascent. I know what they sold the house for and it will take a solid but unlikely 40% market correction in a very conservative area before they will be considered to have made the right decision by selling `at the top` all the while they gave up their tax benefits and equity growth.

    I would emphasize it was a bad, bad decision - they rented this entire time since they have sold... but however, if these same people sold just last year in the inflated market place, it would be considered a prudent investment decision
     
  13. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    china-

    I never said the rich were superior.

    And on the RD boards, I just said that the rich people I know don't define themselves by having money or not having money.

    It's their mindset:

    They feel like if they lose the money, they'll be able to make it back, since they know how.

    In other words, if a rich person loses everything, they can get rich again.

    That's what I meant by "stay rich" in this thread. Not that they could not (or would not) lose everything.

    That can happen to anyone.

    My point was that if a rich person lost everything, they could rebuild and become rich again (i.e., they would "stay" rich, even if they had a loss)

    Ronald Reagan is dead.

    But I'm sure you knew that.

    And I'm not sure what drinking the night away and talking about gold plated handguns has to do with being rich, or having a rich mindset.

    You may want to read this thread

    -Russ H.

    BTW, I think your definintion of "rich" and mine are worlds apart. Yours has to do with someone who spends money-- whether they have it or not. Mine has to do more with a well-considered plan for financial independence and substantial net worth. Some might call this "wealthy" instead of "rich".
     
  14. china
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    china New Contributor

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    If the markets fall below the 2002 price (which I think they will, in a lot of areas) they will be considered shrewd investors.

    Do you know what they did with their profits since they sold? If they bought gold, they are up over 100% since then. There are other things that would have bought them 100% gain too -- so I think it is really hard to call them schmucks.

    I bought a lot of gold in 2005 and that gold is up over 65%. That's better than most housing. Gold that I bought earlier than that is up even more.

    So far, I think people who bought in 2005 thinking they would get a higher price selling are schmucks.... :(
     
  15. ProInvestor
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    Okay heres why the market will crash:

    ~ We are already due a depression.
    (Proven by the fact we have one every 75 years).

    ~ Baby Boomers will be retiring = not earning money (or high income) from job, which means less disposable income to buy things and less money to pump into the stock market. US economy is made up mainly of consumer spending.
    (Proven by economics & common sense).

    ~ Baby Boomers by law must start withdrawing funds from their 401K when they retire.
    (Proven by law).

    ~ US Gov. does not have the money to pay for Medicare, Medicade, social security and debt repayments.
    (Proven by Fiscal Responsibility Tour by the GAO).

    ~ The stock market (where most people have their investment, your home or a holiday house is NOT an investment) has too low yields to support individuals - you make money on the stock market through capital gains not dividend. Hence when baby boomers will have to start selling shares to suplment their income when retired, this does NOT taken into account that many boomers have borrowed to invest (and have to repay that debt with interest from their earnings in a job).
    (Proven by the fact dividend income is usually only 3%-4%; (borrowing rates are around 6%-7%)).

    EVERYTHING is tied to the Baby Boomer generation:
    > Housing prices started to increase when baby boomers started to buy.
    > Stock prices started to rise when Governments made investing (in 401K, etc) mandatory (after 25 years of going nowhere).
    > Stock market up (and housing market up in 2005) because baby boomers have had wage increase (because they have been promoted to upper managment) hence baby boomers have bought extra property such as either investments or holiday/'retirement' houses (why do you think becah front real estate in 2nd/3rd world countries is booming, because when people retire they want to live there).
    > Luxury car sales (BMWs, around $60k-$70K mark) have increased because older, richer people want to keep up with the jones and they have a higher income to pay the repayments and the assets to borrow against to pay for the car (if they want to pay lower interest rate).

    Why do you think the subprime crises will (for all intents and purposes) drift by -
    Because baby boomers are still earning and pumping money into the stock market and buying things!

    NOT because the fed has lowered interest rates.......

    And here is why you are wrong tchandy:
    You say that the rich own 65% of shares. The reason why they own so much is they take their own companies public and they can give themselves free (or much reduced) stock (through options)! In fact the real rich don't buy stock, they sell stock to the public, and they still keep large %s, thats why there is so much ownership.... The rich don't buy shares they sell them! When Bill Gates or Steve Jobs or Micheal Dell or Larry Page/Sergey Brin need $XXmillion they sell their shares and to replinish they just re-issue themselves with new shares/options.

    Rgds.
    ProInvestor
     
  16. nomadjanet
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    Pro Investor,

    I am sure you are much more versed on the stock market than I am and I do not dispute the your view that we are do for a change because I do believe that everything goes in a cycle.
    But, I am a boomer, most of my friends are boomers.
    I asked 10 friends in my age group:
    How will you retire, will you expect to draw large sums out of your stock portfolio's to live off?
    1- answer yes they had a plan to live off their stock portfolio investments.
    9- answered no they would draw only the minimum required by the IRS because they have other investments in reals estate or business that would support their lifestyle.
    Will you depend on social security for more than 20% of your retirement income?
    10 said no I don't expect to get anything from social security that will help me support my life style.
    Will you depend on medicare to supply your health care?
    This is where they were stumped. Most of my friends are self employed or investors: this is one area where they can't answer, how will we afford health insurance when we get old. The older you get the more it costs. If you don't depend on a government group for coverage and you are over 65 with moderate health there are people out there paying over 1700 per month per person. Of course you can budget this amount, but who is to says in 15 or 20 years when I need coverage that amount may be 7000 a month per person.

    So how do we prepare for or use this knowledge to help others & ourselves?
    Janet
     
    Last edited: Oct 13, 2007
  17. ProInvestor
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    ProInvestor New Contributor

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    I will make a few more observations why the boomers will crash the market, but it requires extra steps to prove.

    Now I am going to say the exct opposite of what I've just said, but her me out - the boomers themselves will not crash the market...

    Sophisticated investors will crash the market (by selling their shares) when they realize the whole system is just not sustainable anymore (for above reasons) and has gone past the tipping point (2012-2016).

    Now the boomers for a large part don't own their shares themselves they own them through pension/managed funds. These days pension/managed (and hedged) funds use automated computer software (to sell and buy), hence when the stock market falls dramatically the software sells stock (and usually puts money into Gov. bonds).

    This will have two effects it will trigger other pension/managed funds to sell their holdings, and after a while (if it continues) funds will start to try and sell the most liquid investments they have left (as people move to quality) to stop the bleed.
    This happened with subprime crises (hedge funds had to sell blue chip shares and bonds to pay for redemptions) and this 'movement' occurred with other crashes as well (people move from stock and "junk" bond to treasury bonds).

    The reason why the subprime won't cause this depression is because the Government is still forcing millions of people to keep investing in their pension/managed funds, and the money is still following into wall street in phenomenal amounts (the other reason is that subprime never really affected the baby boomers too much, they still have high paying jobs and the subprime was really only limited to the US market).

    Rgds.
    proInvestor
     
  18. ProInvestor
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    In reply to nomadjanet - No I am wrong - because you have more rep that me! ;)

    If your friends own real estate that has enough positive cashflow then perfect, but that can beg the question - why are they still working? (working decreases time to find deals and invest further, for higher returns).

    However I think you are looking at the wrong section of the population... You have to look at regular people - Not investors. Found a stat: "The average or mean amount in the retirement accounts was $49,944" (2005) Link Total Assets are around $200K - This is similar to every western country - Australia, EU, UK and US!

    I think business owners could have a hard time for a few different reasons (and we are talking about real business, NOT macro 'I can sell this job' ahemm.... business):
    > If a recession/depression hits sales will fall, and when selling buyers are going to demand to look at the figures (this reduces selling price). Even if a business owners decides not to sell (or can't) if it becomes bad it will be difficult to keep trading anyway.
    > Most buyers are going to be looking at real business, not a job (disguised as a business) because of the flight to quality issue.
    > Also there could be a real glut of business on the market, because a large % of business owners are baby boomers (just like the real population).
    > Will be difficult to get financing to buy a business, so expect more vendor financing AND if profits rop the seller (old biz owner) could end up with lower repayments (as any buyer will tie profit and payback together).

    As for health (and I am applying this to myself - others may be different) - keep yourself very healthy (prevention is better than cure!), go for emergency (ER) health insurance and go overseas to get operations. Already the costs can by lower by 500% or more! (for example dental operation in Austrlia = US$18,000 / Philippines = US$3,000).

    Rgds.
    ProInvestor
     
  19. piranha526
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    Proinvestor,
    I am not saying you are right or wrong because no one really knows how it will all happen (something will happen, I think we all agree with that).

    With that said, where does the influx of 100 million working immigrants play into your equation? Immigrants that will be making money, growing wealth, starting families, spending a ton of money and buying investments (stocks, RE, businesses, etc...).

    This seems to be the one aspect of our future economy that economists forget to mention.
     
    Diane Kennedy likes this.
  20. ProInvestor
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    ProInvestor New Contributor

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    > With that said, where does the influx of 100 million working immigrants play into your equation?

    What about France, Germany and the rest of Europe? And Australia, Canada and the UK which aren't going to get 100 million immigrants??? They will be taking money out of the world (and US) stock market.

    And those countries Gov's will be competing aginst the US Gov in borowing funds to pay for their deficits.

    Further on immigration:

    Politics - Will the US build a fence and deterrent (like Europe and Australia have done) because the
    situation stops being tolerated by the bulk of the population (it is slowly happening - US Gov. will start to build some type of fence very soon - Already happened here in Aust)?

    Economy - Will they keep coming over if it's harder to get a job and the US economy looks tipsy?

    Health & Tax - Will they continue to come if health care is unfordable and taxes rise massively?

    Stocks - No offense to immigrants, but really how many have large 401K accounts???

    Rgds.
    ProInvestor
     
  21. ProInvestor
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    ProInvestor New Contributor

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    Rather than be pessimistic heres where I see OPPORTUNITY!

    > Oil - Cars in China and India are being built for $2,500 - wheres the fuel to power all those cars going to come from?
    > Agriculture - 2 Billion people in china and India demanding better lives - hence 'better 'food - expect wheat, sugar, beef and dairy to do well (Go for farmed seafood investments only - catches are falling and natural stocks are being exhausted fast).
    > Energy - Green in India/China (and US & Aust - where coal plants are located). Expect only the dirtiest power stations / factories to be fixed up in USE/EU/Aust.
    > Bonds - Not for the yield, but because of flight to quality
    > Metals - Flight to quality, plus US dollar losing huge amount of value.
    > Positive Cashflow Real Estate - Will do better for three reasons:
    1. Increase in population
    2. Increase in inflation rate
    3. Baby boomers will be desperate to buy assets that put money into their pocket (esp. if they lose big in stock market)
    > Any business (or product) that will reduce medical costs.
    > Really business that do well during recessions (or look at business during depression). Any thoughts???

    Mainly though - Cashflowing Assets (not correlated to stock market)!

    * Note to people - It is very, very late and I am typing as fast as possible and editing to fix up spelling mistakes and make thoughts clearer, sorry if things have changed slightly (or added) from the last time you looked.

    Rgds.
    ProInvestor
     
    Last edited: Oct 13, 2007
  22. Russ H
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    Russ H Gold Contributor Read Millionaire Fastlane Speedway Pass

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    I'm not sure how old you are, but your comments belie a basic misunderstanding of the American socioeconomic/political process.

    When I was a kid (35+ years ago), I read all kinds of 'doom and gloom' predictions that by 2010, the world would be unable to support itself because of the population explosion. Very credible, highly respected scientists showed that by extending current birth rates (the baby boom), the world would have so many new births that we'd literally run out of resources.

    No one bothered to observe that birth rates could change.

    The same holds true for fiscal policy in the US: Congress puts these things off as long as possible (too long), but they finally enact legislation that deals with the problem.

    Which is exactly what will happen w/things like mandatory 401K withdrawals, Medicare and Social Security. By changing the thresholds, payouts, and/or eligibility, or "mandatoriness", the problem goes away. All of this is well documented-- it's just never discussed in the press.

    But if you look for it, you will find it.

    Look at all of your assumptions. Consider how many hinge on "LAW" (aka "legislation").

    Change the laws, and the problems go away.

    So: Will the entire world economy come crashing down into a global depression, as you predict?

    Or will these 2 things happen:

    1. Congress changes the laws (no more mandatory withdrawals, increased limits and age for SS/medicare eligibility)

    2. Baby boomers work longer, some part time, b/c they want to (and haven't saved enough for full time retirement)

    You choose.

    -Russ H.
     
  23. lucas
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    So far the only element neglected from this discussion that I see is this:

    By Federal law, individuals are REQUIRED to start withdrawing from their 401(k)s at the age of ... 69 and 1/2 I think? Maybe it's 70 1/2.

    But I know that it is law that you must start withdrawing your retirement funds.

    Does this change anything?

    If there are tens of millions of baby boomers that all reach retirement age at the same time, and the majority of them are invested in the stock market through 401(k)s, IRAs, and the like, and federal law REQUIRES them to start withdrawing their money at a specific age....

    That isn't going to affect the stock market negatively???
     
  24. tchandy
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    tchandy Contributor Read Millionaire Fastlane

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    I know everyone keeps saying the boomers will retire and pull money out. But who will replace the boomers? It will be the students out of school and other people moving up to take over the jobs of boomers. It is a never ending cycle. I am not well versed in the number of boomers getting out but it only seems logical that they will be replaced. And when the boomers start pulling money out wouldn't the people just starting to work continue to put money in?

    Tom
     
  25. Bilgefisher
    Offline

    Bilgefisher Bronze Contributor Read Millionaire Fastlane

    Messages:
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    Location:
    Aurora, Co
    Rep Bank:
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    Proinvestor,

    A fence in Australia? Could you give me the situation or reasoning and where so I can look it up, you've caught my interest. Maybe I just need a geography lesson because I didn't think Australia bordered any other country. Not trying to be a smart@ss here, just curious.
     

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