For Your Entertainment (FYE)
“In a paper published this week, San Francisco Fed economists Zheng Liu and Mark Spiegel decided to take another look. To answer the question, they compared the stock market’s price-to-earnings ratio, a widely used measure of demand for stocks, with the ratio of “middle-aged” people (age 40-49) to “old-age” people (aged 60-69). The theory is that if 40-somethings are typically buyers and 60-somethings are sellers, the ratio of those two age groups should have an impact on stock prices.
The results are striking. From 1954 to the present, the two ratios track closely. First, they fall together until about 1980, as the stock market endured the grinding, sideways decade of the Great Inflation. During that period, there were fewer 40-somethings of peak stock buying years compared to older investors who, presumably, were selling stocks to pay for retirement.
In 1980, the trend reversed sharply. The baby boomers were beginning to hit their 40s and accumulating stocks as the lower-birth-rate, Depression-era retirees were selling. As the ratio of boomers to retirees continued to rise, so did the stock market’s overall price-earnings ratio.
In 2000, stock prices famously peaked, and the market’s average price-earnings ratio began falling. So, too, did the ratio of 40-somethings to 60-somethings. Both have been falling steadily since.
If the two economists’ equations are right, that trend will likely continue until 2021, when stock prices will be 13 percent lower than they were last year. ”
“But all other things equal, there seems to be a clear link between stock prices and the ratio of 40-something buyers to 60-something sellers. At the moment, the ratio is not moving in the right direction for stock investors. ”
I would add, modestly, a little comment/correction: “The Baby Boomers considered in this article, unfortunately, are the minority. They are the lucky ones with still some money. Most of the others have seen their retirement accounts disappear with the stocks included in them. The article targets a very limited fringe of the US Baby Boomers population. The ones who still have something to play with (selling in this instance) in the stock market”. “Overall, I am NOT sure that the Baby Boomers areas significant as indicated in the article in the stock market. Unless we count peole like multi-Billionnaire Berkshire Hathaway’s Warren Buffet as a “Senior Baby Boomer”……….;+) If we all were all like Warren Buffet, we probably would have bought the manufacturers in China and make the BRIC countries work for us instead of us working for them to repay the debt we owe them”……….;+)
Baby Boomers have always been bad news for something. ;+)
I know, I am one of the worst ones! ;+)
That reminds me of the movie “Blood Diamonds” with Leonardo Di Caprio, where Liberia “child soldiers” of RUF call themselves, “Master of Disaster”, “Born Trouble”, “Worse Nightmare”, “Devil’s Own”, “Mama Cries”, “Blood Bath” “Force 10 Hurricane” etc…….Those would be appropriate calling names for the Baby Boomers…..At least, it would match the universal perception of their kind……..;+)
We could even add a new name, now, even though more moderate: “East Coast Earth Quake”……that must be the fault of some Baby Boomers, too! ;+)