Thursday, November 20, 2008

This Week's Theme: Trends That Will Stick
The Baby Boom's Market Order: Sell, Sell, Sell

Today's "trend that will stick": a demographic trend which cannot be reversed is the ageing and retirement of the Baby Boom. Some 60 million people will be hoping/trying to scale back/quit their livelihood, and if they have any assets, they will be selling them to raise money to live on.

This is not difficult to anticipate; the topic has been addressed many times (see this site's archives 2005-2006); I have long recommended these two books on the subject:
Fewer: How the New Demography of Depopulation Will Shape Our Future
The Coming Generational Storm: What You Need to Know about America's Economic Future

This has two major consequences:

1. Medicare expenses will rise far more quickly than the tax revenues which support the program

2. Boomers will be selling houses, real estate, stocks, bonds, collectables, etc. to fund their retirement.

This is the natural course of events as we age. My mother sold her house a few years ago in order to pay for her assisted-care apartment. My father and stepmother recently sold off their nestegg property for similar reasons.

That's what people do when they retire: sell assets to raise cash.

So the first Boomers (born 1946) are retiring at 62 this year. (Military personnel and anyone who was disabled were able to retire even earlier.) Since waves of Boomers will be retiring for the next 15 years (roughly those born in the years 1946-1961), it is straightforward to anticipate waves of assets being sold.

The Boomers will of course be inheriting a store of wealth from their parents as the World War II generation passes on, and this will provide the Boomers with assets to sell.
The Boomers (yes, I am one) as a whole have not exactly showed much restraint in their spending or much long-term planning in their savings strategies, and thus we can anticipate a bias toward selling assets and spending the proceeds for the next 15 years.

Who will be buying all these assets as they're being dumped on the market? Unfortunately, the younger generations are not quite as numerous as the Baby Boomers, and until such time as Medicare collapses under its own weight /is declared insolvent, they will also be paying more taxes to fund the Boomer's skyrocketing Medicare expenses.

That will leave them less money to invest in assets the Boomers are selling.

Then there's the global depression which we are just now entering. That will also limit who has the capital to buy assets and how much the assets will fetch on the open market.

If the generation now maturing to join the workforce enters a global economy perking along in a new alternative-energy-powered boom in 4-5 years, then that wealth creation might create a pool of buyers for all the assets the Boomers are selling. That is the positive scenario.

If no such global boom ignites in a few years, then the scenario of Boomer-owned assets being dumped into a marketplace with few buyers does not bode well for the price of those assets.

Thank you, Larry W. ($100) for your outreageously generous donation to this site. I am greatly honored by your support and readership.

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