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Politics : Ask Michael Burke
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To: baggo who wrote (37419)11/24/1998 1:40:00 PM
From: Mike M2  Read Replies (2) of 132070
 
Brice, prior to increased use of defined contribution plans there was the defined benefit plan pension money which went into the markets. I would suspect that the public places a higher % of retirement money into stocks than the pension fund managers who had a fiduciary responsibility to manage the money " prudently" this meant greater diversification and it meant selling overpriced stocks and increasing the fixed income weighting when stocks were overpriced. Saving for retirement is nothing new except for baby brats hooked on debt and consumption. Many of todays investors will hold stocks until they fall enough to motivate them to sell ( capitulation). Everyone has their breaking point. The Japanese mutual funds lost 90% of their assets after the peak in Dec 89. I don't know how much was due to declines in mkt value and how many "long term investors" threw in the towel. Human nature does not change we have fear in Japan and greed in the U.S. this will change. Back to the issue of steady flows from retirement investors the resultant rise in stock prices vastly exceeds these flows because the public is reluctant to sell but eager to buy. Think of the flows into the market as growing at an arithmetic rate while stock prices are increasing at a geometric rate while this is not mathematicly accurate it is meant to illustrate how stocks become inflated beyond all reason. One other point the foreign money flows are far larger ( by a factor of several fold some say but I cannot confirm) than the retirement money flows. One illustration of the disproportionate rise and FALL in stock prices is the loss in mkt cap from the july 20 peak to the Oct. lows ( Can't remember if it was 2 trillion Help anyone) . whatever the number was the paper losses vastly exceeded the inflows for the year. Simply put a manic market such as this is a PONZI scheme. Last year the US saved $260 billion dollars. The inflation in stock prices dwarfs this number. Later Mike
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