The Generational Short Part 2: Who Will Boomers Sell Their Stocks To?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Those who see the current era as the New Normal also have one logical action: sell now at the top and wait for the smoke to clear in 2016.

In The Generational Short: Banks, Wall Street, Housing and Luxury Retail Are Doomed, I addressed how generational changes in values could affect the stock market. That values change over time is common sense, and so is the idea that values drive choices about purchases, debt and investments that ultimately influence stock valuations.

The implicit conclusion: the Baby Boomers won't have anyone to sell their stocks, real estate and bonds to. Correspondent Eric A. demolished the fantasy that Gen X will have the income and assets to buy the Boomers' stocks held in IRAs, local government and union pension funds and 401K accounts in Generation X: An Inconvenient Era (May 23, 2013).

The idea that Gen-Y will have the wealth (not to mention the desire) to buy the Boomers' stock market portfolios at nosebleed valuations poses a peculiar conundrum: the only way Gen-Y will have the wealth to buy Baby Boomers' assets is if the Boomers sell their assets and pass the wealth along to Gen-Y.

So if both Gen-X and Gen-Y are out as buyers, who's left to buy the tens of trillions of dollars of Boomer assets at bubblicious prices? Given that other nations face the same demographic dilemma, the answer appears to be: no one.

Let's move on to the question of whether the current valuations are an aberration or the New Normal. This matters, because if the period from 1994 to 2014 is a one-off aberration, that means stock valuations will eventually revert to historical levels far below current valuations.

Here is a chart of the Dow Jones Industrial Average (DJIA) from 1955 to the present. Does the current era of bubbles and crashes look remotely normal, compared to the decades prior to 1994?

If this is the New Normal, then what that means is a bubble and crash every 7+ years is now the expected cycle. Here is an annual chart of the DJIA (courtesy of Harun I.; comments by CHS) that shows the megaphone pattern that's been traced out in the New Normal era of huge bubbles and equally monumental crashes:

If this is indeed the New Normal, wouldn't it make rather obvious sense to sell at the top (i.e. now) and wait for the New Normal crash and bottom around 2016?What evidence is there that this latest and greatest bubble is sustainable?

Next, let's look at the fundamental relationship of stocks to the nation's gross domestic product (GDP), a broad measure of the economy. Current sky-high stock valuations are not just aberrations in terms of previous stock prices--they're aberrations in terms of stocks' valuations compared to the nation's entire economy.

Doesn't it boil down to this? If we can't come up with a viable cohort who can afford (and is willing to place that generational bet) to buy Baby Boomer assets at current bubble-level prices, then it follows that as the first Boomers start selling their assets, prices will fall as there is nobody left to buy them, at least at these valuations.

Those who see the current era as an aberration have one logical action: sell now and get out while the gettings good.

Those who see the current era as the New Normal also have one logical action: sell now at the top and wait for the smoke to clear in 2016.

Now that it's evident that central banks have been buying stocks to prop up the bubble-level valuations ("Cluster Of Central Banks" Have Secretly Invested $29 Trillion In The Market -- Zero Hedge), some may assume the central banks will buy another $29 trillion in stocks from the Boomers--or what the heck, make it $50 trillion or $100 trillion--there's no limit, right?

How safe is that bet, i.e. that central banks will be able to buy most of global stock market without any consequences or blowback?

It might be safer to hope the Martian Central Bank prints a few trillion quatloos and shows up to save the bubble-era Boomer portfolios from self-destruction.

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Mon, 06/23/2014 - 08:16 | 4884999 tarsubil
tarsubil's picture

The Fed! And you know it!

Mon, 06/23/2014 - 08:20 | 4885010 rbg81
rbg81's picture

The real question is:  who will their kids sell it to?  Most Boomers will still be holding the stock when they die.

Mon, 06/23/2014 - 08:22 | 4885012 SheepRevolution
SheepRevolution's picture

Belgium.... and Belgium!

Mon, 06/23/2014 - 09:04 | 4885106 Thought Processor
Thought Processor's picture

 

 

The FED and it's primary dealer proxies have been propping this market up since 2003 though one could argue earlier to 2001 and even 1997 with evidence that much of this began after the 1987 crash and the origination of the PPT.

Everyone knows that this whole thing is a sham now.  We are so far away from 'Free Market Capitalism' it's laughable.  The system as it operates now is unsound and currently operating without a foundation (ie: foundation of both laws protecting investors and asset holders as well as real price discovery).  

 

When the Gov. and Cronyism runs rampant this is exactly what happens-  Potential buyers chose not to participate.  

Why would any sane person put their money into an unsound system?   

Mon, 06/23/2014 - 09:25 | 4885186 Pladizow
Pladizow's picture

"It might be safer to hope the Martian Central Bank prints a few trillion quatloos...."

Perhaps this is part of the alien invasion Krugman is forecasting?

Mon, 06/23/2014 - 11:58 | 4885738 Save_America1st
Save_America1st's picture

Yet another question is why aren't the "Boomers" buying mining and other commodity stocks along with precious metals right now?  What, is that area too inexpensive to take a look at or are they too snoby to own anything non-Goog or non-Apple? 

Talk about a historically oversold, under-valued, and massively bottomed-out sector that's about to explode!  That'll be the mother of all bubbles when people (and hedgefunds) finally figure that out and jump in there to grab anything they can.  Funny thing is that although it will be a massive bubble, it will still be the only area based on real fundamentals and not just the Fed pumping them up artificially...but so many are going to rush into it at once and chase it up that it's defintely going to have a blow-off top at some point.

Buy mining stocks now...most miners that have survived these past 3 ugly years at least have shown that they were strong enough to survive and smart enough to downsize and reduce capex for a while until this all blows over.  They're probably producing what they can under the avg. cost of prod. per ounce in gold and silver too and still making a small profit.  Just enough to get buy.  They know their time is coming very soon now.

Once they start getting bought up they'll be able to expand production and things will really take off quick.  That's when you take your winnings above your core holdings and start buying more phyzz Ag and Au.  It'll be getting much more expensive going forward, so you may as well use your mining stock winnings to buy as much phyzz as you can find with it.  Free phyzz, bitchez!!! 

The "Boomers" and others who haven't been paying attention are just going to have to sit on the sidelines and cry about it as their equities crash all to hell. 

They have been warned over and over again...

Mon, 06/23/2014 - 12:05 | 4885802 COSMOS
COSMOS's picture

They dont have to bother selling.  Most of those companies won't be around.  The manufacturing ones will be completely replaced by Chinese.  That leaves a bunch of sh** services companies that dont matter.

Mon, 06/23/2014 - 12:17 | 4885856 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

China is not without its own set of (very big) problems.

Mon, 06/23/2014 - 13:01 | 4886010 Gaius Frakkin' ...
Gaius Frakkin' Baltar's picture

Maybe they can set up avatars that can trade and play hot-potato long after they're dead! Then, Uncle Satan can impose heavy taxes on these virtual accounts since no one will care!

Mon, 06/23/2014 - 09:32 | 4885213 Top Gear
Top Gear's picture

A crony is merely a friend. With whom else would you trade market goodies? Is "adversary capitalism" the answer?

Mon, 06/23/2014 - 10:09 | 4885365 max2205
max2205's picture

Charles you short first

Mon, 06/23/2014 - 10:22 | 4885411 toady
toady's picture

A crony is not merely a friend. If the author wanted to say friend he would have used the word friend.

The word crony has a negative connotation. It indicates the "friends' are up to no good.

Mon, 06/23/2014 - 12:38 | 4885909 SWCroaker
SWCroaker's picture

Have always viewed cronies to mean 'friends of the corrupt", not friends of me or decent folk.  They and their cronies may be be best buds, but they're also a-holes, so ...

Edit to add: peek @ dictionary shows both meanings, with your's primary, but mine more typical in modern usage.    Um, I'm old as dirt; how *old* are you!?!

Mon, 06/23/2014 - 13:34 | 4886167 toady
toady's picture

Just turned fiddly. Still just a youngster to some, older than dirt to others.

Mon, 06/23/2014 - 12:17 | 4885854 Eirik Magnus Larssen
Eirik Magnus Larssen's picture

Classic.

Mon, 06/23/2014 - 08:22 | 4885013 tarsubil
tarsubil's picture

From what I can see, they will still own their ridiculously big houses but they will have spent all the stock money by the time they die.

Mon, 06/23/2014 - 08:25 | 4885024 Tortuga
Tortuga's picture

They need the "ridiculously big houses" for the tax free trust method of passing on wealth.

Mon, 06/23/2014 - 08:28 | 4885034 tarsubil
tarsubil's picture

I don't think that was their concern when buying a house. If they live long enough, they'll probably use a reverse mortgage to supplement their lifestyle at the end of their debauched life so sorry kiddos. It's the slash and burn generational wealth destruction method.

Mon, 06/23/2014 - 08:34 | 4885047 Handful of Dust
Handful of Dust's picture

Foreigners don't want our stawks; they want houses. Student Yutes with heavy loan debt don't want stawks either. Any money theyget goes straight to pot, gurls and parteeing. Seniors don't want stawks because they need to survive on 0.01% savings yield and need to eat.

Mon, 06/23/2014 - 09:49 | 4885277 magnetosphere
magnetosphere's picture

dont worry we can always kill the old farts if we need to

Mon, 06/23/2014 - 11:20 | 4885630 TuPhat
TuPhat's picture

I'm an old fart and I expect you will try.  I'm ready for it.

Mon, 06/23/2014 - 11:39 | 4885691 Smiddywesson
Smiddywesson's picture

Come now, let's get this over with...

 

The Dead Collector: Bring out yer dead.

[a man puts a body on the cart]

Large Man with Dead Body: Here's one.

The Dead Collector: That'll be ninepence.

The Dead Body That Claims It Isn't: I'm not dead.

The Dead Collector: What?

Large Man with Dead Body: Nothing. There's your ninepence.

The Dead Body That Claims It Isn't: I'm not dead.

The Dead Collector: 'Ere, he says he's not dead.

Large Man with Dead Body: Yes he is.

The Dead Body That Claims It Isn't: I'm not.

The Dead Collector: He isn't.

Large Man with Dead Body: Well, he will be soon, he's very ill.

The Dead Body That Claims It Isn't: I'm getting better.

Large Man with Dead Body: No you're not, you'll be stone dead in a moment.

The Dead Collector: Well, I can't take him like that. It's against regulations.

The Dead Body That Claims It Isn't: I don't want to go on the cart.

Large Man with Dead Body: Oh, don't be such a baby.

The Dead Collector: I can't take him.

The Dead Body That Claims It Isn't: I feel fine.

Large Man with Dead Body: Oh, do me a favor.

The Dead Collector: I can't.

Large Man with Dead Body: Well, can you hang around for a couple of minutes? He won't be long.

The Dead Collector: I promised I'd be at the Robinsons'. They've lost nine today.

Large Man with Dead Body: Well, when's your next round?

The Dead Collector: Thursday.

The Dead Body That Claims It Isn't: I think I'll go for a walk.

Large Man with Dead Body: You're not fooling anyone, you know. Isn't there anything you could do?

The Dead Body That Claims It Isn't: I feel happy. I feel happy.

[the Dead Collector glances up and down the street furtively, then silences the Body with his a whack of his club]

Large Man with Dead Body: Ah, thank you very much.

The Dead Collector: Not at all. See you on Thursday.

Large Man with Dead Body: Right.

Mon, 06/23/2014 - 11:53 | 4885760 magnetosphere
magnetosphere's picture

may the best man win

Mon, 06/23/2014 - 12:41 | 4885927 OldPhart
OldPhart's picture

FU, too!

Mon, 06/23/2014 - 20:55 | 4887744 Abbie Normal
Abbie Normal's picture

How, by sending a poison text from your Mom's basement?

Tue, 06/24/2014 - 13:59 | 4889965 magnetosphere
magnetosphere's picture

geezer please it is precisely the kids without jobs who will provide fodder for the revolutionary vanguard and send you to an early grave.

btw the text won't come from your mom's basement.  from her bedroom.  ohhhhhhh!

Mon, 06/23/2014 - 13:56 | 4886232 TheReplacement
TheReplacement's picture

Do they own or owe for those houses?  How will they pay property taxes on those houses? 

Mon, 06/23/2014 - 11:40 | 4885696 NESD
NESD's picture

The stocks many not pass to future US generations but go instead to foreigners with $US they have to do something with. Chinese sell us cheap plastic crap and toxic goods and use a portion to buy $billions of US assets including stocks. Not entirely bad because they have less incentive for military or financial mischief if they have large US assets at risk.

Mon, 06/23/2014 - 11:41 | 4885700 JRobby
JRobby's picture

By then all assets will have been confiscated.

Mon, 06/23/2014 - 13:02 | 4886028 NotApplicable
NotApplicable's picture

You mean "bailed out" via "nationalization" by the CBs.

They'll call it something different by then, though.

Mon, 06/23/2014 - 12:09 | 4885825 Sonic the porcupine
Sonic the porcupine's picture

The fed/belgium and the Chinese (at a huge discount).

Mon, 06/23/2014 - 11:46 | 4885723 SethDealer
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Soccer

Mon, 06/23/2014 - 08:17 | 4885001 AlaricBalth
AlaricBalth's picture

Who will Boomers be selling stocks to?
The Fed, that's who.

Mon, 06/23/2014 - 08:19 | 4885005 GetZeeGold
GetZeeGold's picture

 

 

I had a dog.....his name was BINGO!

 

Little fella made me a fortune in gold....and he could get me a beer out of the fridge.

Mon, 06/23/2014 - 08:43 | 4885065 Paper CRUSHer
Paper CRUSHer's picture

 Hey GZG,

After reading a___________ article such as this............

http://www.bloomberg.com/news/2014-06-23/german-gold-stays-in-new-york-in-rebuff-to-euro-doubters.html

.........one is compelled to commit_______________. (fill in the blanks)

Mon, 06/23/2014 - 09:34 | 4885218 DeadFred
DeadFred's picture

So Germany gives up on getting their gold back. I guess they gor some dirt off of tapping Merkel's phone after all.

Mon, 06/23/2014 - 10:47 | 4885505 bonin006
bonin006's picture

At least the 3 comments below the article point out it is BS

Mon, 06/23/2014 - 08:47 | 4885061 mtl4
mtl4's picture

Exactly.........I have 2 issues with this article

 

1) Bearish megaphone will be parabolic not linear (you think the market's been running hard so far, foot on the floorboards right til the end)

2) Who the heck is going to cover the shorts if the SHTF?  you'll probably be getting worthless fed bucks (aka treasuries in return)

 

Now's the time to buy some hard assets with all that fiat money before inflation goes into overdrive.

Mon, 06/23/2014 - 09:30 | 4885206 sessinpo
sessinpo's picture

mtl4    Now's the time to buy some hard assets with all that fiat money before inflation goes into overdrive.

----

Money is disappearing down a debt hole, not inflating. Yes, prices of many things such as food and energy is up. But wages are down.  That means for the average person, you don't have more income to chase goods. You have dwindling income chasing goods. Deflation. Your wages are stagnant or going down so you have less. Money becomes more valuable to get higher priced goods. Just the fact that prices are up does not equate to inflation.

Mon, 06/23/2014 - 10:25 | 4885394 mtl4
mtl4's picture

I agree you bascially have stagflation right now (no growth, inflation of hard goods) but to me the reason why the brought Bernake (the self-proclaimed expert on the great depression) is to prevent the dying star from collapsing on itself.  So instead of contracting the money supply like they did during the Great Depression, they will continue to play games with turning the QE spigot on/off until the asset prices will shoot for the moon (then you get your spectactualr deflationary crash when it unwinds).  We all know the cronyism will continue so even if individual wages are not growing the money is still out there flowing into assets of all sorts (Blackstone - Real Estate, Major Banks - commodities, etc) but eventually unless the Fed (all goverments are really playing this game now) can soak up all the QE it put out there, inflation will continue to accelerate (but don't expect to see it in the CPI stats because everything looking like inflation will be excluded).

Mon, 06/23/2014 - 11:47 | 4885726 Four chan
Four chan's picture

so the fed is shooting for a gas giant rather than a dwarf star or black hole?

Mon, 06/23/2014 - 12:00 | 4885782 mtl4
mtl4's picture

It's all about where you are in the progression.......given the size of the economy I'd say we're on the 2nd track.

 

http://mrbarlow.files.wordpress.com/2009/05/life-of-a-star.jpg

Mon, 06/23/2014 - 12:08 | 4885818 Jerk_Store
Jerk_Store's picture

so the fed is shooting for a gas giant rather than a dwarf star or black hole?

Or maybe just a gassy black hole

 

Mon, 06/23/2014 - 12:19 | 4885860 toady
toady's picture

I love the smell of napalm in the morning. 

 

One day this war is gonna end.

Mon, 06/23/2014 - 10:33 | 4885455 sidiji
sidiji's picture

It'll be good to have more Chinese and other asians in USA, f kers work hard and what they earn they hold on to...so make way for the new landlords you deadbeats

Mon, 06/23/2014 - 12:14 | 4885838 Jerk_Store
Jerk_Store's picture

It'll be good to have more Chinese and other asians in USA, f kers work hard and what they earn they hold on to...so make way for the new landlords you deadbeats

 

Already happening in the CA bay area..They already chased the formerly "middle class" out to the valley where 20 years ago, it would have been unheard of to want to live there.

Mon, 06/23/2014 - 12:22 | 4885869 toady
toady's picture

It was already like that in the nineties when I lived there. I imagine it's only worse now.

Mon, 06/23/2014 - 08:17 | 4885002 Oldwood
Oldwood's picture

Sold all of mine in 2010.

I know I have "lost" so much money. But I say fuckem. They will probably burn the whole thing to the ground but I won't help with my pittance.

Mon, 06/23/2014 - 08:49 | 4885091 dontgoforit
dontgoforit's picture

We sold the mini-mansion in '07 (JIT for sure); but like you, we bailed at 13,800 and that mutha looks like it's going to go to 20,000.....so, yeah, we lost out too, but at our age, the 3% we're getting at least keeps us from losing too much ground.  At 65 you can't take the risk like you use to.  Not enough time to recover.

Mon, 06/23/2014 - 08:19 | 4885006 tom a taxpayer
tom a taxpayer's picture

Mt. Dow Dispatch from bivouac at elevation 16,947 feet (2300 hr EST June22). Excited. Hard to sleep…we rise at 0930hr for historic attempt to reach Mt. Dow elevation 17,000 ft. Bitter cold wind slashing tent. Exhausted from last week's several attempts from Camp IV (elev. 16,800 ft) to reach elev. 17,000 ft. Tactical decision on Friday (1600 hr) to bivouac at 16,947 ft and not to return to Camp IV. Rest over weekend. On Monday only need to climb 53 feet, and we have 6 1/2 hrs to do it.  

Looks like we'll ascend to historic 17,000 ft elev. before the Mt. S&P expedition reaches its historic 2,000 ft elev.  It's all just friendly "competition". We're both part of the Federal Reserve Expeditions Incorporated with the best tools, equipment, oxygen, Sherpas, and monetary support…so there's never a danger of falling or failing to reach new heights. 

(cough, cough)  Air is thin…need a fix of my federal reserve oxygen…

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