Thursday, May 31, 2007

Baby Boomers Cashing In. So What?

I almost forgot to point out for you this column by Mark Hulbert in The New York Times May 27 Sunday edition (subscription required).

In it Hulbert observes that more than a few people have predicted a multi-decade bear market ahead for US stocks because the baby-boomers will be cashing in their retirement nest eggs.

But Hulbert counters this view with the results of a recently released economic study by three economics professors. They are J. M. Poterba (M.I.T), S. F. Venti (Dartmouth), and D. M. Wise (Harvard). Wise was a friend of mine when we both were in graduate school and I have a lot of confidence in his work. Their paper can be found here.

In this paper the three authors argue that the total of 401(k) assets plus corporate pension plan assets will in the year 2040 represent a significantly bigger fraction of that year's Gross Domestic Product than is now the case in 2007.

I think this punctures the bear balloon based on any baby-boomers asset bust. It is also consistent with the long term view I expressed here a short while ago.


Aurelien said...

Hey carl,

The link to the economics professors work isnt working. Any chance you could fix it?

Carl Futia said...

Fixed it!

Anonymous said...

im waiting for password ect in
order to access the the paper you
talk about . yet i think you will
see a similar book on the subject
if you were to read
the next great bubble boom by
harry dent .
in closing now that there is a paper givng a bull mkt into 2040
shorter term is should be veiwed as we are closer to a top then a bottom .

Anonymous said...

The article seems to describe a giant Ponzi scheme where a continual new flow of "bigger fools" will want to continue to buy overpriced assets. You can do whatever you want to, but I am not going to bank my future on this idea. My house went down 10% in price over the last year, and real inflation ate up another 7-8% of the value. The point is that even if the buyers are there when I cash in my 401k, the money will be worth only 10-20% of what it is now. Value is leaving us like a bathtub with no drain stopper. When it comes time for your own little slice of the economy to be drained, it will only take a short while for it to be over. The upper middle class, as the only people in America who actually have net worth, are being drained right now and it should all be over with fairly quickly. An upper middle class breadwinner and the person who mows their lawn may have more in common than they think.