2/20/2009

[Zebo]

Cliff's - he makes a very good case for S&P 500 @ 30 x whatever you think is a reasonable P/E ratio for S&P 500 companies.

Reasonable to me is 7 so 210 aint too good is it? That would put dow at about 2000.

Deep under cover indeed

 

[Deleted member 4644]

Originally posted by: dullard

Originally posted by: Zebo
Problem with that is all baby boomers and supporting their dead beat children will make a run on the market soon, when allowed w/o penalty. Then I'll get in.

I've made that argument myself. But someone here claimed (without proof) that the baby boomers actually have a negligible amount of money in the stock market. I never looked it up, so to me the answer is left unclear. Maybe we should look that up. Do they have enough in the stock market to make another significant dent?

I wonder about this as well.

But it there is a serious danger that some BBs will have to start selling stock to pay for stuff in the near future.

 

[Fern]

Originally posted by: Zebo

Originally posted by: dullard

Originally posted by: Zebo
Problem with that is all baby boomers and supporting their dead beat children will make a run on the market soon, when allowed w/o penalty. Then I'll get in.

I've made that argument myself. But someone here claimed (without proof) that the baby boomers actually have a negligible amount of money in the stock market. I never looked it up, so to me the answer is left unclear. Maybe we should look that up. Do they have enough in the stock market to make another significant dent?

If that's true then I'm wrong - but as you say lets get some evidence. Also, there is still the issue of the investor class finally waking up to the lack of real dividends which I think will make them shift into treasuries and bonds over time. Then you have issue of can USA companies even compete on global market, come sure can like big pharma, oil, but other whole industries are dying like autos. I don't see this recovery for a multitude of reasons not just one.

Re: Baby Boomers' money in the stock market.

I don't believe the data exists to accurately determine what age group holds what portion of stock. Age type data is necessary and available for retirement-type accounts (they must be able to determine whether a distribution is premature and/or when mandatory etc). But I don't believe regular brokerage accounts need/use that data. Then there are stocks held by fictitious entities (companies/partnerships/trusts etc) for which no age-related data is even possible.

But I'd say quite a lot of stocks are held by Baby Boomers. (1) I've been doing their tax returns for about 30 years and these people have a pile of stocks. (2) We here in the US switched from Defined Benefit-type retirement plans to Defined Contribution plans in teh early 80's. A Defined Contribution plan is one in which you invest in stocks etc with pre-tax dollars. I.e., begining back in teh early 80's employees began invetsing directly in teh stock market, instead of their company's (DB) pension plan doing so.

My recollection (I was a finance major in university as well an accounting) was the stock market only really began going 'retail' in maybe the 70's or 80's. (I remember seats on the NYSE for sale at only a $100K back then.) This would also indicate a lot of Boomer participation.

I was able to find an academic paper on this subject (amount of BBoomer investment in the stock market and effects of their mass retirement on stock prices) Here - a Wharton/UPenn article

There?s little argument that as boomers became more affluent in their 30s and 40s, they poured money into stocks and other investments. Indeed, mutual fund assets in the U.S. soared from less than $48 billion in 1970 to $6.9 trillion at the end of 2000, according to the Investment Company Institute, the funds? trade group.

I believe this confirms my beliefs stated above (i.e., a lot of BBoomer money in the stock market)

As far as whether their mass retirement will have an adverse effect on stock prices, that's subject to debate. But I think most of the real debate is focused on 'how much', not 'if'.

Re: Lack of Dividends.

This is puzzling to me also. When most employees were on the old Defined Benefit pension plans dividends were highly desired. They needed the cash flow to fund the retirements to (ex)employees. Cutting dividends was not often done, even when the company had a loss for the year. The effect on the stock price would have been horrendous. I was working the IBM execs accounts back in the early 90's when IBM got in a lot of trouble. They had to cut dividends and the ir stock value plummeted resulting in John Akers getting canned (CEO and Chairman of the Board).

But starting in the mid- 90's seems to be people became aware that while dividends were taxed at (higher) ordinary rates, LT cap gain on stocks were taxed lower. The result being 'conventional wisdom' began favoring the discontinuance of dividends (or maybe scaling back). By retaining the cash a companies stock just increased in value and people would get their 'cash' by selling the stock and only paying low cap gains tax.

However, in 2003 tax law was changed and diivdends (generally) enjoyed the same low rates a LT cap gains. Why that didn't encourage companies to move back to dividends is a question.

My guess?

1. Since the 80's an awful lot of exec compensation is based on stock price. They may not want to pay out the company's cash and prefer instead to let it accumulate thus driving up the stock price - and their compensation.

2. The market (traders etc) make a lot of money on 'buys and sells'. They get nothing from dividends. So, the lack of dividends forces buy's and sell's and they profit.

The only benefit to dividends I see ATM is for the 'regular' guy; the only one with no real say in the matter.

Fern

 

[dullard]

Originally posted by: Fern
[snip]

Hey, thanks for that post. It is highly rare when I pose a question and it actually gets answered, let alone answered with a quality post.

Have a :beer: for your effort and for the upcoming weekend.

 

[Bowfinger]

Originally posted by: Zebo

Originally posted by: Bowfinger
ROFL. That whistling sound you heard was the point soaring far over your head. Our economic situation today would be exactly the same had McCain been elected, making your childish dig at Obama purely pointless partisan stupidity. You may want to stop digging now.

(By the way, it's dishonest to alter someone's quote without showing you've done so.)

Not quite Bow, small businessmen I know are laying off with a wink and a nudge to me thinking they can derail Obama's plans visa vi making economy worse, unemployment worse and claiming he will make their life hell so they better cut all fat, save cash, and otherwise take to ground. Banking on dissatisfaction 2010 or 2012 to 'get their way' One guy is so partisan he just closed his auto paint shop and laid off all claiming Obama's EPA will ban this and that, and have him paying health care and unemployment into perpetuity, not worth it to him - so he's fishing today while I'm working.


Small business employs most people, so my anecdotes are having a deleterious effect, at least locally - can't comment on corporate America but I would imagine same mentality runs to the top.

I'd take that with a grain of salt. While I'm sure there's plenty of sour grapes grumbling, at the end of the day a competent businessman is going to make decisions based on what is best for his business, not partisan spite. To whatever extent there are incompetent Republican businessmen making poor decisions out of spite, I would suggest there would be a comparable number of incompetent Democratic businessmen making equally poor decisions had McCain won. All of the smart businessmen I know are doing whatever they think they must do to save their businesses.

I will agree that my use of the word "exactly" was exaggerated to make a point. It would have been more precise to use "essentially." The point was that it's too early in his term for anything Obama is doing to have significant effect on the state of the economy. Had McCain been elected instead, we would be in essentially the same boat today, Ocguy's childish sniping notwithstanding. It will take time.

 

[StageLeft]

The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

In regard to savings/investments, the key question is: are people who will retire soon more likely to be selling stocks than existing people buying them? It's no secret that people today are terribly poor at saving and thus investing, so there could be an argument for the so-called baby boomers' retirements influencing a fairly substantial selling of stocks to pay for retirement (that is the point of their investments afterall), but will there be enough to fill the void?

We are in the biggest bear market in a couple of generations, so those with the most money, i.e. those closest to retirement, are not going to have the time or inclination to get back in the game. Everybody else, even with those who have decades left to retire, are going to be a bit more cautious, especially as they are told by their parents how much their parents have just gotten screwed. There absolutely will not be a quick rebound back to 14k.

 

[SickBeast]

The TSX here in Canada dropped 235 points yesterday and wound up below 8,000 overall. On the week, it probably dropped close to 7-800 points. The media here did not publicize it at all. They're probably trying to minimize the fear-factor.

I think a large part of the market meltdown is caused by the baby boomers retiring and having to sell their stock holdings to pay for their lifestyle. There's not much a stimulus package can do to counteract it, either. We all just may be doomed to have a reduced lifestyle for quite some time.

 

[StageLeft]

Originally posted by: SickBeast
The TSX here in Canada dropped 235 points yesterday and wound up below 8,000 overall. On the week, it probably dropped close to 7-800 points. The media here did not publicize it at all. They're probably trying to minimize the fear-factor.

I think a large part of the market meltdown is caused by the baby boomers retiring and having to sell their stock holdings to pay for their lifestyle. There's not much a stimulus package can do to counteract it, either. We all just may be doomed to have a reduced lifestyle for quite some time.

Strange. I visit cbc.ca sometimes and I just have no idea what the hell it's all about. Like it could be the middle of a nuclear war and their headline news will be how a Canadian poet was just nominated for some award, it's really really fricking strange to me. Like go there now and the main story is about clinton strengthening ties with China. Weird.

Hopefully most baby boomers on the verge of retirement were not stock heavy, but fact is many were, and even among those who weren't most are feeling various levels of pain. If they are trying to save their retirement, even at less money, they will want to cut their losses and run.

 

[SickBeast]

Originally posted by: Skoorb

Originally posted by: SickBeast
The TSX here in Canada dropped 235 points yesterday and wound up below 8,000 overall. On the week, it probably dropped close to 7-800 points. The media here did not publicize it at all. They're probably trying to minimize the fear-factor.

I think a large part of the market meltdown is caused by the baby boomers retiring and having to sell their stock holdings to pay for their lifestyle. There's not much a stimulus package can do to counteract it, either. We all just may be doomed to have a reduced lifestyle for quite some time.

Strange. I visit cbc.ca sometimes and I just have no idea what the hell it's all about. Like it could be the middle of a nuclear war and their headline news will be how a Canadian poet was just nominated for some award, it's really really fricking strange to me. Like go there now and the main story is about clinton strengthening ties with China. Weird.

Hopefully most baby boomers on the verge of retirement were not stock heavy, but fact is many were, and even among those who weren't most are feeling various levels of pain. If they are trying to save their retirement, even at less money, they will want to cut their losses and run.

Even if they're not stock-heavy, their pension is, and when they retire, whoever manages their pension has to sell some of their assets in order to pay the retiree.

If you click on "money" at the cbc.ca/news section, it actually has a pretty comprehensive report. IMO the Globe & Mail website has the best news coverage in Canada.

 

[bamacre]

Originally posted by: Skoorb
The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

http://www.census.gov/populati...proj/natprojtab02a.pdf

The % of 65+ certainly increases.

 

[StageLeft]

Originally posted by: bamacre

Originally posted by: Skoorb
The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

http://www.census.gov/populati...proj/natprojtab02a.pdf

The % of 65+ certainly increases.

Yeah I mean there are kind of chunks and definable age groups and trends, but not huge, like in 10 years all the baby boomers will retire and then we're left with nobody to do jobs that require experience sort of thing.

 

[SickBeast]

Originally posted by: Skoorb

Originally posted by: bamacre

Originally posted by: Skoorb
The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

http://www.census.gov/populati...proj/natprojtab02a.pdf

The % of 65+ certainly increases.

Yeah I mean there are kind of chunks and definable age groups and trends, but not huge, like in 10 years all the baby boomers will retire and then we're left with nobody to do jobs that require experience sort of thing.

That's when immigration will stimulate the economy.

 

[bamacre]

Originally posted by: Skoorb

Originally posted by: bamacre

Originally posted by: Skoorb
The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

http://www.census.gov/populati...proj/natprojtab02a.pdf

The % of 65+ certainly increases.

Yeah I mean there are kind of chunks and definable age groups and trends, but not huge, like in 10 years all the baby boomers will retire and then we're left with nobody to do jobs that require experience sort of thing.

Well, if our population of 65+ increases by 80%, just imagine the costs of SS and Medicare increasing by 80%, and at the same time, the % of <65 decreases.

But that's a whole other thread.

 

[Carmen813]

Originally posted by: Ozoned
figure 1 point = 1billion $. Cross check that with each stimulus and bank bailout spending bill that passes. Note the correlation .

Correlation != causation.

 

[StageLeft]

Originally posted by: bamacre

Originally posted by: Skoorb

Originally posted by: bamacre

Originally posted by: Skoorb
The population of the US is growing. I've never bought into the idea that there will be some mass exodus of people from the employment pool--ie., the boomers--without somebody else to fill them in. It's not like there were decades where people just didn't have kids and the employment pool will suddenly shrink.

http://www.census.gov/populati...proj/natprojtab02a.pdf

The % of 65+ certainly increases.

Yeah I mean there are kind of chunks and definable age groups and trends, but not huge, like in 10 years all the baby boomers will retire and then we're left with nobody to do jobs that require experience sort of thing.

Well, if our population of 65+ increases by 80%, just imagine the costs of SS and Medicare increasing by 80%, and at the same time, the % of <65 decreases.

But that's a whole other thread.

The trick is the old people have to die quickly before the boomers kick in.

 

[Perknose]

DOW Broke its bottom again today

It's an epidemic! :shocked:

 

[soccerballtux]

Originally posted by: Zebo

Originally posted by: dullard

Originally posted by: Zebo
Still overvalued like all stocks are. Whole thing has been about a 50 year pyramid scheme.

A pyramid or Ponzi scheme relies on new members to pay off long term members. The stock market relies on (a) new members and (b) company profits in order to pay off long term members. There is a similarity there, but there is also a major difference. The rise in stock prices is basically a pyrmaid scheme. But the dividends are not. Dividends historically were quite decent (approaching 5%). While that isn't the 10% that people expected from stocks (since that included an additional 5% pyramid scheme profit), it is a decent return. Too bad dividends were slashed in the internet boom and all we are left with is scraps and the pyramid scheme.

Thanks Dullard, glad someone sees the problem - I speak in hyperbole to get my point across sometimes You explained the problem better.

You know it's funny a few months ago I had the exact same thought zebo, ponzi scheme. When all the baby boomers, after retiring, start liquidating, it's going to be rough.
They should have their money in stable investments, however clearly they didn't, so I bet it'll just get worse as they unload. Of course, LK called me many a colorful word for thinking such and basically said I'm the stupidest person on the planet.

 

[MovingTarget]

Drive for Five(thousand)!

 

[soccerballtux]

Originally posted by: Fern

blah blah blah tl;dr tl;dr
Fern

Great post Fern, thanks for writing all these thoughts of yours down. I wonder how many people read the whole thing. I did.

I love this forum; I learn so much here.

 

[soccerballtux]

Originally posted by: MovingTarget
Drive for Five(thousand)!

I think you mean dive.

 

[BoberFett]

Originally posted by: soccerballtux

Originally posted by: Zebo

Originally posted by: dullard

Originally posted by: Zebo
Still overvalued like all stocks are. Whole thing has been about a 50 year pyramid scheme.

A pyramid or Ponzi scheme relies on new members to pay off long term members. The stock market relies on (a) new members and (b) company profits in order to pay off long term members. There is a similarity there, but there is also a major difference. The rise in stock prices is basically a pyrmaid scheme. But the dividends are not. Dividends historically were quite decent (approaching 5%). While that isn't the 10% that people expected from stocks (since that included an additional 5% pyramid scheme profit), it is a decent return. Too bad dividends were slashed in the internet boom and all we are left with is scraps and the pyramid scheme.

Thanks Dullard, glad someone sees the problem - I speak in hyperbole to get my point across sometimes You explained the problem better.

You know it's funny a few months ago I had the exact same thought zebo, ponzi scheme. When all the baby boomers, after retiring, start liquidating, it's going to be rough.
They should have their money in stable investments, however clearly they didn't, so I bet it'll just get worse as they unload. Of course, LK called me many a colorful word for thinking such and basically said I'm the stupidest person on the planet.

If LK's head got any bigger you'd swear it was the next big bubble.

 

[MovingTarget]

Originally posted by: soccerballtux

Originally posted by: MovingTarget
Dive for Five(thousand)!

I think you mean dive.

Fixed.

:beer:

 

[soccerballtux]

Originally posted by: BoberFett

Originally posted by: soccerballtux

Originally posted by: Zebo

Originally posted by: dullard

Originally posted by: Zebo
Still overvalued like all stocks are. Whole thing has been about a 50 year pyramid scheme.

A pyramid or Ponzi scheme relies on new members to pay off long term members. The stock market relies on (a) new members and (b) company profits in order to pay off long term members. There is a similarity there, but there is also a major difference. The rise in stock prices is basically a pyrmaid scheme. But the dividends are not. Dividends historically were quite decent (approaching 5%). While that isn't the 10% that people expected from stocks (since that included an additional 5% pyramid scheme profit), it is a decent return. Too bad dividends were slashed in the internet boom and all we are left with is scraps and the pyramid scheme.

Thanks Dullard, glad someone sees the problem - I speak in hyperbole to get my point across sometimes You explained the problem better.

You know it's funny a few months ago I had the exact same thought zebo, ponzi scheme. When all the baby boomers, after retiring, start liquidating, it's going to be rough.
They should have their money in stable investments, however clearly they didn't, so I bet it'll just get worse as they unload. Of course, LK called me many a colorful word for thinking such and basically said I'm the stupidest person on the planet.

If LK's head got any bigger you'd swear it was the next big bubble.

Hahahaha.

 

[finite automaton]

My 401k is stock heavy. I am 23. Should I move it to a stable value fund for now?

 

[BoberFett]

Originally posted by: finite automaton
My 401k is stock heavy. I am 23. Should I move it to a stable value fund for now?

Investing 101: Conventional wisdom says that at 23 you can afford to be in risky funds because even if you hit a downturn, you've got a long time to recover. The older you get the more you want to be in stable funds, because if things tank just as you need to pull the money out, you could be withdrawing at a huge loss.