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Strategies & Market Trends : The New Economy and its Winners

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To: Mark Fowler who wrote (7292)	5/30/2001 12:55:30 AM
From: craig crawford	Read Replies (2) of 57684

>> How do you know what will happen in 2005 and what crisis are you talking about? << Demographics. It's all common sense when you lay it all out. The baby boomers hit their late 20's in the early 70's and we started a real estate boom peaking in the 80's. They started investing for retirement in their mid 30's during the 80's and a bull market in stocks took off. The baby boomers hit their peak earnings power in the '90's and they poured incredible sums of money into the stock market through IRA's and 401k's and that's why we had a bubble. What happens in 2005? The leading edge of the boomers turn 60 and they lose their appetite for buying stocks. They want to start withdrawing from their IRA rather than contributing to it. They will want to favor income oriented stocks with dividends and safety. They won't want the risk of over-priced bubble stocks with no yields the closer they get to retirement. Trouble is, dividend yields are at historic lows even though we just had a goldilocks economy. Some will want to diversify more into bonds, but with inflation rearing it's ugly head they are going to need double digit interest rates to make those attractive. Well I'm sure you know what higher rates mean. Not good. They and everyone else will know that every year after 2005 there is just a bigger avalanche of selling on the horizon as more boomers hit the age where they will need to withdraw money for their retirement. It will be a rush to see who can pull their money out first before the selling comes on stream. Foreigners will start pulling out and the dollar plummets. There are a bunch of scenarios but you can be assured the frenzied pace of investment by boomers will slow down in the coming years as they approach retirement age. That frenzied pace of funds into mutual funds was the only thing supporting our bubble and that aspect will be gone. Who or what is going to replace that? Our dollar denominated assets are already the de facto choice around the world. Nowhere to go but down. Like I said before, maybe you can convince 1.3 billion Chinese to play in our casino. The bulls loved to talk about how the bull could run on and on and on because boomers would pour billions of dollars every week into retirement accounts. Well let me tell you it works in reverse when they all decide to start drawing money out of those accounts. Like I said, why people naively think stocks are going to be the place to be for the next decade is beyond me.

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