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The Generational Short Part 2: Who Will Boomers Sell Their Stocks To?
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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Bershire bought Prudential Realty. Warren ain't buying homes, he's now a real estate agent.
inflation drives tax revenues - tax revenues are percentages....get it???
problem is the laffer curve - law of diminishing returns
in short, 200 mph freight train meet 100 foot thing steel enforced concrete wall
100 foot thing steel enforced concrete wall meet 200 mph freight train
CHS asserts that when/if the markets crash again, a few months later 'the smoke will be cleared' again and we'll be all set for another runup? What if this is the final takedown, and after the next market blowoff it never comes back and USD is no longer world reserve currency and we're basically 3rd worlded?
All the markets are essentially "nationalized" right out in broad daylight anyway. Eventually they say fuck it, we own everything, all your shorts are belong to us.
The DOW to GDP ratio is not as relevant an indicator given that offshore revenue started taking off in the late 80s as well. A more relevant ratio would be the DOW to global GDP ratio, which factors in export growth.
The Federal Reserve should also buy housing and demolish it to keep NAR going.
The Federal Reserve can be like North Korea and own everything.
Plenty of US welfare spending for illegals now flooding the boarder. Maybe the Obama can cut down the channel stuffed autos by giving each illegal a new car.
The TV tells me to buy stawcks, I will buy stawcks.....
All of these market predictions seem to be missing some key piece of data, something that you think should be obvious, yet it isn't even addressed. With the housing market, the piece they ignore is Where are the buyers going to come from?
Obviously, we are seeing clear signs that the younger folks coming up are NOT going to have the means to purchase homes the way we did. The spirit may be very willing, but the wallet is weak. You would think that this fact would loom over the entire discussion, but nobody even TALKS about it!
Where do they think these folks will get the money to buy any homes, much less the overpriced McMansions their parents are trying to sell?
If I was a cigarette seller and I knew that smoking was losing popularity among the young, I'd be pretty stupid to claim that my business was going to grow as it has in the past. And I sure as hell wouldn't be expanding that part of the business. As an investor, that trend would make me think twice before putting my money into it. And if I went on TV and claimed that the cigarette business was poised to take off, the network would haul me off camera with a hook and issue an apology.
I'm beginning to think I've accidentally stumbled into another dimension of reality. Maybe it's just me...maybe I'M the one who just isn't seeing what's not there...So, the 'car' has been serviced, has brand new tires. The weather is fine, the roads are clear...maybe we WILL be on our way soon. Maybe I'M the one being a 'negative Nancy' by pointing out that there's no gas in the tank. Maybe I should just shut up and get in the car already and stop bringing everybody down with my fault-finding...
Or maybe I should just say the hell with ya'll and go catch the bus.
When you have everything in life, why buy? Maybe the credit card companies need to target the kindergarten generation to expand debt growth.
The only generational short is in housing, boomers have no assets, and that's a short that takes 30 years to ripen
So many boomers are downsizing right now or have plans to do so to cut expenses.
Generation X. Debt free. What is your excuse? Stupid socialist cunts come to mind. Await your response.
I am the last of the boomers and I sold all of my stocks already, I'm not sure which idiots bought them.
Chart number one makes me think of the nasdaq bubble.
"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."
I seriously doubt that central banks around the world are buying equities for the purpose of "saving bubble era boomers from self-destruction".
If we take their reasons at face value, it is to protect themselves from the effects of QE and ZIRP. It could be that central banks are engaging in cold war policies where equities are the weapons of choice.
Who to sell to? Silly question. Boomers will sell to hedge funds and big banks, who will continue to get proxy money from the Fed in order to buy anything and everything. The only real question is that after the Fed, ECB, and BOJ are done - will there be ANY stocks or bonds left in private hands!
Wait, the Fed, ECB, Bank of Canada & England can't all be buyers of first, last resort & every option in between?
Shocked, I is.
There is nothing stopping them. They already fired the ethics consultant
Who says Gen-X is out? I've been buying since 2010, when it became clear that the Fed was going to prop the thing up, for good.
Charles, the boomers are still on the majority of power levers.
The decision has already been made years ago now: "inflate or die."
As the only one who can inflate is the Fed, it will also be the entity that buys up all the bonds (already happening), stocks, and real estate no one else can or wants to buy.
This will continue until enough boomers died off, and then other groups decide to use the power levers in different ways - so it's many years to go!
(A US currency collapse is also possible but unlikely - we are already seeing how induced collapses of other currencies and/or squeezing other countries out of their gold reserves to have enough physical to keep the paper gold ponzi rolling, are being cleverly used to prop up the status quo.)
What about the companies themselves (along with the CBs)? They have already shown they are more than willing to buy high and low in order to support their stock options. Why would this scenario change?
Anatomy of a bubble -Redux...
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
Put it in the ironclad trust & leave it to your genetic posterity?