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Fed Economists – “We see a 15 year Bear Market for Stocks”
The San Francisco Fed has come out with a research paper connecting the dots between the retiring baby boomers and stock prices. The thinking is that the boomers will divest themselves of stocks as they retire and eat into their savings. This is an old argument, but I still found it interesting.
The authors, Zheng Liu and Mark M. Spiegel have attempted to quantify the implications. Their principal conclusions:
We find that the actual P/E ratio should decline from about 15 in 2010 to about 8.3 in 2025.
The model-generated path for real stock prices implied by demographic trends is quite bearish. Real stock prices follow a downward trend until 2021.
On the brighter side, as the M/O ratio rebounds in 2025 (BK: M/O = Baby Boomers die), we should expect a strong stock price recovery. By 2030, our calculations suggest that the real value of equities will be about 20% higher than in 2010.
These conclusions are just horrendous! The suggestion is that there is a 15-year bear market in front of us. Multiples will fall by 50%!! I loved the “good news” from the report, that stocks might be 20% higher than 2010, but we have to wait 20 years to see that improvement.
Bloomberg interviewed Spiegel about this report. There was one comment that I thought was telling:
“We do see it as something of a headwind as the economy is attempting to recover.”
This is worst kind of "Fed Speak" in my opinion. These deep thinkers have it completely wrong. They think that the key to having a stronger economy is higher stock prices. So they spend all of their efforts dreaming up ways to keep the S&P ramping up. I think it is the exact other way around. If the economy were to be growing, it is reasonable to assume that stock price might rise. It is completely false to assume that attempts to jigger stocks higher will lead to a stronger economy.
The dog wags the tail. The tail does not wag the dog.
This is what we get for having academics from Princeton running the show. They have the cause and effect backwards. No wonder the economy sucks.
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One of the BEST PE charts and presentations I've seen was the 56 minute point of this video.
http://goldsilver.com/video/debt-collapse-20-000-gold-mike-maloney/
Do you know the date the presentation was given? Always suspicious when none is given.
It was some time ago. Later in the presentation he states that the rise in equities from early 2009 to early 2011 was a dead cat bounce. Pretty long bounce, eh?
I watched that video and an earlier presentation he did in Europe. That presentation convinced me to move out of stocks and into PMS. I haven't been sorry.
When they say 20% real, does that mean 20% nominal or 20% inflation adjusted? And if its inflation adjusted, is it CPI based or monetary base-based?
'Real' = Inflation adjusted. I would suspect they'll be using the lowest possible inflation figure available, so that the returns look as good as possible. Therefore CPI.
The market will make us all rich. We should all quit our jobs and becme day traders. What is better than making money from nothing and doing nothing of value to society. If we all becom rich then nobody will even need to work. Lets just create robots to do all the menial tasks. I can't be bothered to lift a finger, I'll be rich.
That pretty much sums up the entire Wall Street set. If they all vanished would anything of consequence actually happen?
Your comment makes more sense than ALL the meaningless, esoteric crap from the fed.
Wall Street is way ahead of your thinking. They already have robots doing most of the "work". The question is, "Who owns the robots?"
The Crooks own the Robots. Goldman Shafts, The Morque, Shitty Bank and Weels Fagos for starters.
Great Timing for this article. About as good as Scumbag Robert Prechter.
The very same people who own Washington, DC
No, of course not, but you know the rules, don't talk about fight club.
I'm betting P/E to reach infinity, as no earnings, so Buy the Focking Dip Bitchez!!!!
P/Es are always low at tops, and yes, very very high at capitulation bottoms.
But Wall Street asks that you please not tell the Sheeple this little problem with "fundamental analysis"
you mean BUY the mo'fo' SHORT on this to date STILL overblown market~!