In 1945, the second world war ended. The biggest baby boom ever was born. In 2010, these people reach the retirement age of 65. For the last 10-20 years, these “boomers” have occupied the top jobs the world over. They are paid more than anyone else. This massive unrelenting river of cash has flowed into the worlds stockmarkets, washing over every hiccup and backstep the world has conjured up.
Once the boomers retire, they will stop funneling cash into stocks and mutual funds. The effect of this river turning off, by itself is enough to insite panic to those in the industry. But of course the river doesn’t simply dry up, it reverses flow. The stockmarket is a giant balloon, and Im not talking in an “asset bubble” sense. Think of all the salaries derived directly and indirectly from it. Theres the brokers, the advisors, the analysts, the fund managers…….even the market related magazine writers & editors……..and software providers, computer technicians, I.T techs………its all intertwined.
Just to stay flat, it requires massive inflows of cash. Just to stay flat. To rise it requires a hell of a lot more. Take away the boomers weekly contributions when they retire @ 65, and all of a sudden your “balloon” goes flaccid real quick. Heres the thing……..they wont only quit their high paying jobs, which means tax revenue plummets, which means government spending is slashed. They will stop putting money INTO their retirement funds, and begin taking money OUT of them. So now the pump attached to our balloon is not only NOT pushing air in, its sucking it back OUT as well! But wait, theres more! The worldwide economy falls in a heap as the largest age demographic stops being a consumer, and starts being a conserver. Know any listed companies that thrive on recession?
Before you start freakin out, I aint finished with the bad news yet.
Heres the really bad news. Retirees dont like shares as a passive income source. Dividends are twice annually which is hard to live off, even if yields are not lousy which they are. Retirees also dislike volatility. And there will be plenty of that before the fit hits the shan. Many boomers will sell out of frustration / disgust. But they wont be the only ones. Mum & dad investors wont want to throw money into an asset class which isnt performing and has a bleak outlook. They will sell shares as well.
Boomers prefer to own assets which provide regular (as in weekly), consistent income with low volatility. This means they will SELL all their shares and invest in cash or property.
So……..are we all clear by now that shares just aint gonna be where the smart money is in a few years? Unless we are talking debt collection companies or healthcare / drug manufacturers………
So now we have a situation where the “other asset class” is in the dog box for bad performance, a suddenly slowed economy, a high demand for stable income assets, an abundance of cash and a large number of people who still need a roof over their heads.
History shows that property has its best growth when shares arent doing so well. Nuff said.
By 2010 boomers are selling shares and some are investing in fixed interest ie cash / term deposits. What is the bank gonna do with it all? Answer – relax lending criteria! It will be so easy to get a mortgage I might put a house in each of my cats names! What effect do you think that will have on the property market? Then consider those who sold shares cos they were not performing. They will see property taking off and will jump on the bandwagon.
Remember……..retirees will still NEED somewhere to live. And those boomers who are renting will likely have the government coughing up the rent money. So from a risk perspective, it only gets better.
Where do things go from there? who knows. maybe 2010 will be the property cycle top. maybe it will rally into 2020.
But to all those who are preaching of doom & gloom in property ahead……..start thinkin!
I have been thinking about this for a while too,
my thoughts were that when I look around at alot of the baby boomers I know, (and I am talking the average joe here) not many of them actually have overflowing super funds most of them actually have quite limited super saving's due to the fact that they have not been putting money in their whole life as super has only come about in the last 15years or so, so the great sell down of stocks might not turn out to be as big as people imagine,
Also because of there limited funds in super and government incentives alot of boomers will continue to work past their retirement age, possibly still contributing to super,
another factor that might have some affect is alot of people that have been preparing to retire have already begun switching their super funds to a more conservative footing so you may find alot of their funds have already moved away from shares and into fixed interest, cash and property funds,
Also due to their lack of super alot of retirees will down size the family home and move to retirement villages, this will have some impact on prices in the capital cities I am sure.
One sector that I can see it having a big affect on is the franchise sector, all Mcdonalds, donut kings, KFC's,Gloria Jeans, jims mowing etc,etc,etc. Most of these businesses are being run by baby boomers as they get older and want to reduce there work load the will sell these businesses, meaning the price for such businesses may be weak for a few years, great news for some young guys who want to get in and build a mini franchise empire though.
When they sell these business they may even invest the cash into their super funds who knows.
All interestin .. perhaps right … though if one looks at the population of westernised countries generally – a few things jump out at you … firstly, not all had baby booms (particularly those now in the old 'eastern bloc') …. example: look at rural east germany …. secondly, one was quite advanced in terms of aging and it's economy … example: look at Japan's demographic today … finally, this is not the first population 'correction' the world has known … example: London/UK 1360-1365 … though the current shift is the slowest.
Ever wonder how the frog feels?
The 'greying' is important – but the freefall in birth rates from around 1971 (and the earlier 'bounces') is critical and we're not expecting a upturn in the national labour market cache of available workforce bods of any significance until after 2032 or so.
Skilled migration? Well .. all westernised countries are drinking from the same well – and its finite as their labour market caches also contract.
Impacts? .. well, in the UK example, wholesale societal and structural shifts and significant rural contraction … in the Japanese example – well … the impact on their economy is obvious … and rural east germany – almost devoid of people and the cessation of govt rural infrastructure spending.
No real point to my scribbles – it is just an interesting topic
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… make a difference, be the difference …
And don't forget that world oil production will peak as well which means the potential for a world market collapse and general anarchy as existing supplies begin to dry up. And we are years away from a working alternative to oil.
Dont forget funds which give quarterly or monthly distributions. With enough cash in a fund like Navra australian share fund, and some budgeting skill, you could live very comfortably in retirement.
Hi Crashy, interesting nomenclature!
I'm myself a baby boomer, "retired" at 52, living off investment properties. Among my friends, about 1 % aren't working, only 1 other is living on savings, the others are supported by husbands who are either still working or who have retired on govt pensions or have enough investment income. The majority will work "till they throw me out". This was said by my school friend who works for a French water treatment company.
So Tysonboss' more moderate view may have some merit. I will be around in 2010 to find out, I guess.
I hope you're wrong because if you're right, then I'll have to go back to work at 60+
Have a good day,
Kum Yin
Im not sure if it is bleak as crashy indicates. We need to remember the sharemarket also exists to facilitate the purchase of shares in companies. Not all companies will be impacted by the oldies. Lets think of Westfarmers, BHP, RIO and there are plenty more.
Demand vs supply is only one factor. So long as these companies continue to provide better results than cash or property there will always be a good market.
So a lot of money has flooded the market recently and it has artificially raised the price of many shares/trusts. However we also need to look at the company fundamentals. These too have also raised their ask price on the market.
I think the bleak period for us Aussies will occur when the global market takes a big dive. Otherwise there is enough global demand to manage any downturn from the oldies.
Thats my non statistical 2c worth of hope and faith (perhaps a little blind!!!)
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