15 year bear market ahead? Some think boomers will pull their cash from stocks

Aug25
by admin on August 25, 2011 at 5:16 am
Posted In: Finance

Fed Economists – “We see a 15 year Bear Market for Stocks”

The San Francisco Fed has come out with a research paperconnecting 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 about8.3 in 2025.

The model-generated path for real stock prices implied by demographic trends isquite bearish. Real stock prices follow adownward 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.

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