Boom

This article on Bloomberg addresses a huge, and largely underreported issue: the aging Baby Boomers.   This post WWII cohort has made some recent headlines in regard to entitlement reform.  The real impact, however, could be far wider than just the future of both Social Security and Medicare.

All of the issues, of course, are interrelated.  As the American public further absorbs the realities of government finance, they are going to save more.  This goes double for the Boomers.  They are on the cusp of retirement – or what they thought would be retirement – the federal government is saying, “Remember that help with the nest egg we promised?  Well, we might not be able to pay you quit as early, or quite as much or both.”

At the same time, their stockbroker is now saying they should begin to transition to fixed income; i.e. sell stocks and buy bonds.  It's a Hell of a thing to suggest after watching stocks effectively go nowhere for the last 10 years; as well as now being told to buy bonds with the 10yr trading at less than 2.5% (with a negative 10yr TIP yield).  No matter how you slice it, real return on capital denominated in dollars is way down.

What does it all mean?  Boomers are going to save more and spend less.  This is going to put a cap on GDP until we can figure out a real immigration policy.   How do I know this?  The stock market, and – more importantly – the bond market are telling me so.

Everything taken as gospel for the last 30 years should be re-examined.  Every “certainty” like the direction of housing and stock prices cannot be taken for granted.  Buy and hold at your own risk… unless it's commercial real estate!