New question for you, Michael. It has occurred to me that with a very large population bubble, known as the boomers, rapidly approaching retirement, standard evaluation rules for stock prices may be skewed. I suspect that many boomers like myself have been saving for quite some time. I have also read recently that this savings pattern has been recognized by the street (although that probably means that smart money has known for quite some time). With the tax laws changed to make real est. partnerships unattractive and for other reasons, I believe that we are seeing a longterm investment binge, or bubble, forming.
This bubble occurs simply because people must save for retirement, and so many people need to save right now because of the huge population bubble called the boomers. All of us boomers are still working and savings. I contend that all this savings is the key component in high stock evaluations these days (of course everything is relative, so don't take that to extremes). Look at what people can earn with other investments excepting stocks. Look at the restrictions on 401k plans. Almost all this money is going into stocks, because that's where we get the best returns.
Now I also claim that the situation will be reversed when the majority of boomers are retired, simply because we will all be withdrawing funds for income, so net flows will reverse. I don't think one needs a genius IQ to see this.
My question is multiple part, intended to solicit response from anyone who wishes to contribute. This one is not intended to be a quick note and forget subject. I am very interested in what people sense on the longterm horizon due to this situation.
1. When is the timeframe for the bubble to burst? I suspect
in spite of "common sense" high stock valuations will drive
prices much higher (of course with corrections, not up,up)
until the general money flow ebbs.
2. What are the signs to look for (timely enough to help)?
I believe that a good case can be made for an almost utopian stock market (globally) for some time followed by a very long, very ugly world-wide depression. This has repercussions that I don't want to get into. What do other people think about these macro-scale ideas?
Me? I'm just an engineer trying to survive (longterm).
Ed Miller |
