Downturn to Last Until 2020?

chisueOctober 22, 2008

An article in today's WSJ by Joe White quotes an author, H. S. Dent, who says retiring Boomers will be a drag on an already slow economy to 2020.

He claims that the non-saving Boomers (only 2% of income saved and those savings down 20% in the market bust) will cease buying the frills that kept the economy booming, and the much smaller population of buyers coming up will have a glut of Boomer housing from which to choose. Dent claims this cycle repeats every 80 years.


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Not unreasonable nor unsupportable, IMO.

Harry S. Dent has been provocative previously in his optimism... but pretty accurate in hindsight.

"Past performance is no indication of future events" yadda yadda.... *AND* he seems to be within reasonable scope of foreseeable reality.


    Bookmark   October 22, 2008 at 6:19PM
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Considering,as of this post, the job market/unemployment isn't in terrible shape,i don't agree...Most people are affected with the market downturns in housing and stock only on "paper", and while painful to look at,it isn't real until you need to sell...

Perception has a big influence on market conditions,both to the upside and downside..Yes, times are tough, and some people are struggling.However, there are people struggling during good times as well..I still see lines at the local "casual" fast food joints, still see people buying goods at the malls..Probably less then the past, but people are still spending..

The world is not coming to an end,and if you want to buy a product a service,and can afford it,there may not be a better time to do such...I have contractors giving me quotes about 15%+- less then they would have 3 months ago...

    Bookmark   October 22, 2008 at 6:23PM
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I wonder how many baby boomers have saved much of anything for retirement and how many have been spending everything they make buying bigger and better stuff. Though my CFP certainly didn't divulge any names, he did comment that I would be amazed to know how many other clients he has from my relatively affluent neighborhood who spend everything they make and have practically zero net worth. I personally think there are lots of people out there who have been doing things like taking equity out of their homes and racking up big credit card debt to buy lots of stuff - those consumers who have been keeping the economy going. If there are many of those folks out there and they decide they do actually need to save for retirement then I'd say there could be quite a reduction in spending.

Right now I know six primary breadwinner baby boomers who have recently been laid off. One was actually a very successful business owner who lost a major customer and went bankrupt - his cars were recently reposessed and he will likely lose his home soon. These are college educated professionals who suddenly don't have a job. I think there are tangible things happening - not just on paper.

    Bookmark   October 22, 2008 at 11:21PM
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So we boomers kill the economy if we don't spend, and we drag down the economy if we don't save?

    Bookmark   October 22, 2008 at 11:36PM
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Geez... boomers screw things up no matter what they do!

Nothing has tanked in my area, and I know plenty of boomers with sizable savings.... a little smaller because of the market, though.

    Bookmark   October 23, 2008 at 8:21AM
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gdognj -- " isn't real until you need to sell." That's what Dent is saying: Boomers with little to no savings WILL need to sell when they retire/are fired.

It's sad to listen to Boomers who have saved little and/or have lost big hunks of what they did save. They say, "I guess I'll just have to work longer." Oh yes? WHERE? (And that job will much?) (And you'll be long?)

On GMA this morning the anchors predicted a housing bottom in June 2009. They also predicted an unemployment high (7 - 8%) for the same time. Does that sound overly optimistic to you?

    Bookmark   October 23, 2008 at 9:35AM
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an unemployment rate of 7-8% isn't terrible.. 7 out of the 10 years of the 1980's were 7% or higher,getting close to 10%...In the early 90's it hovered at 7% for 3-4 years...The world didn't end then, and it won't now..
Is the economy in a difficult spot? No question about that..But all economies are cyclical,and downturns and recessions are part of the normal cycles,so nobody should be surprised...

    Bookmark   October 23, 2008 at 10:25AM
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Of course no one should be surprised but it seems after the extended period of irrational exuberance that a good number of people may be poorly prepared to weather any extended downturn without a good deal of pain. What concerns me is that our government may be inclined to spare people the pain that comes with the territory at the expense of other taxpayers who may have been more prudent in their decisions.

    Bookmark   October 23, 2008 at 1:00PM
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I meant to ask if anyone thought a 'bottom' in housing and 'top' in unemployment would come as early as June 2009, as GMA predicted. I don't think so.

    Bookmark   October 23, 2008 at 4:57PM
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re title: I doubt it, sincerely.

Corporate balance sheets, which were in the red 10 years ago at the last downturn, are currently holding huge amounts of cash. If you "x" out the financial sector, the combined cash in the Dow's other 14 sectors totals $1.4 Trillion, according to one of the analysts on CNBC today. They may slow or cut down hiring, but they can actually hold out pretty well through a slowdown.

There will definitely be a great deal of pain going forward. I feel for the folks in Michigan and Ohio, for instance; there will undoubtedly be another decade (or two) of pain in the Rust Belt states due to the faltering US carmakers.

But Proctor & Gamble, Microsoft, Wal-Mart and Merck, amongst others, will more than likely still be around in 5 years, and remain formidable market forces.

Despite the fact the US stock market has fallen 38%, the European, Asian, South American, and Russian stock markets have fallen MUCH further. It has been pointed out several times by several media analysts that China's 9% growth rate is highly suspect; e.g., there is some talk that real growth is actually in the 4-5% range, although the drop in oil prices will certainly provide them with as much relief as it provides the US.

Now, whether individuals can hold out until things turn around, is another matter. When I look at my parent's generation, it doesn't seem to me that they retired with substantially more money than Boomers will, overall. Some of the 'oldsters' did very well, some of them did poorly, most of them did so-so.

The Boomers were probably the first generation where in a high percentage of cases, both spouses worked and generally speaking, made higher salaries than their parents. Yes, expenses are higher (two cars instead of one, for example) but many of them have a much higher real net worth along with a larger total Social Security check, than their parents did. Even the Boomers I know who are struggling, still possess a surprisingly solid net worth.

For every sad story, I suspect there may be half-a-dozen boring examples ranging from "we're okay" to "no problems". But of course, that doesn't make good headlines, LOL.

And the Gen X and Y folks are spenders. They work hard and indulge in a good lifestyle - admittedly, where we live (San Francisco Bay Area) this IS the way of life here.

There are indeed many people who have not handled credit wisely, but they can learn from their mistakes - we certainly did, and have ended up with a very comfortable retirement nonetheless.

    Bookmark   October 23, 2008 at 10:43PM
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I always find it very informative to listen to certain professionals, and one of them is Mohammed El-Erian, Pimco co-CEO & CIO. My favorite show Fast Money and host Dylan Ratigan talked with him Friday 10/24 on a teleconference about how long it will take to recover, and the video is posted to their website (sorry, there's a short Schwab commercial before it starts - Schwab sponsors the show).

Here is a link that might be useful: CNBC Fast Money video interview with El-Erian of PIMCO

    Bookmark   October 25, 2008 at 12:33PM
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