I’ve read three economic books so far all printed in different years from 1997 to present and they all have their own version of what will happen when the baby boomer wave hitting the age of 65 will start around 2008. All books agree it could cause major turmoil in our healthcare system, social security, economy, and most of all for us traders the stock market reaction. Basically in a nutshell we have to pay for all these elders, or at least the ones that want to stop working, unlike my parents in their 70’s still working just normal jobs. My parents are basically living proof if you don’t save you are basically going to work until you die, unless of course I can change things which I am trying to do. Don’t get me wrong my parents have retirement income and tiny social security payments but I want to earn enough to set them free finally, even if they want to keep working.
2 good books on this subject are Boomernomics and Alan Greenspan’s “the age of turbulence”.
“the worst that can happen” thinkers
Here is a quote from an article I read today that supports what Alan Greenspan said in his book just 2 years prior:
“the boomers’ retirement could cause stock prices to fall 40% to 50%”
“Even if boomers want to sell, Dr. Siegel argues, there will be plenty of younger and newly wealthy people in China, India and other emergent countries who will be ready to buy all the securities that the boomers want to dump.”
“The Congressional Budget Office projects that Social Security spending, absent changes, will grow from about 4% to 6% of the U.S. economy in the next 25 years, while Medicare and Medicaid will grow from 4% to 8%. By 2050, programs for the elderly are likely to eat up as big a share of the economy as the entire government does today — forcing working Americans to face a possible 50% increase in their taxes.”
“David Walker, the U.S. comptroller general, thinks failure to come to grips with that fundamental fiscal problem could hold the seeds of the U.S.’s demise. “The Roman Republic fell for many reasons,” he has said, “but three reasons are worth remembering: declining moral and political civility at home, an overconfident and overextended military in foreign lands, and fiscal irresponsibility by the central government.”” – Alan Murray, WSJ
More recession thoughts:
“Kasriel said that if banks have to report more losses due to bad bets on subprime mortgages, they will be unwilling, or unable, to make large loans to businesses and consumers.”
“So even if the Fed keeps cutting interest rates, the impact of the cuts may be “less potent” than rate cuts in previous recessions since consumers and businesses may not be able to borrow enough to keep spending. That could make this recession more like the one in 1991-92 than the relatively short and mild recession of 2001.”
“Historically, and not surprisingly, recessions accompanied by declines in consumer spending tend to be more severe. And people are going to be constrained from spending by the declines in housing,” Kasriel said. – Chris Isidore, CNN Money
“the upside” thinkers
Quote from an article about rate cuts that backs the statement about financial stocks rebounding first – think about it. If homes are bought again and mortgages are taken out, at 52 week lows, hitting 200DMA lines, with low PEGs and low PE’s these should be first to rise:
“Rate cuts are designed to stimulate borrowing and, in turn, business activity and the overall economy. They also will eventually boost profit margins for banks and other lenders, which have been working to lower costs and raise cash levels through layoffs and stock sales after having lost billions of dollars to bad mortgages and mortgage-related investments. Those companies — including Citigroup Inc., Washington Mutual Inc. and Merrill Lynch — were the big winners Wednesday.”
“What has happened is the Fed is flooding the system with liquidity and eventually we should see some traction in the economy. And stocks tend to respond first,” said Steve Goldman, chief market strategist at Weeden & Co.” – Madlen Read, AP Business Writer
So this brings me to the fact that home prices from my research looking and interested in buying in many different states prices have already fallen a good 15-20% which backs up the current economist. We also continue to see major layoffs and “restructuring” financial statements in big companies. We also know from lower earnings and screaming “slower growth economy” fears that companies Price to Earnings (PE) growth will be lowered which will lower stock prices. Even though financial stocks have major downtrend lines, lots of debt and bad loans, it does seem since they are down the most and have already took on the pain they would be most likely to move up first. You can’t pound a stone into the ground. Currently financial stocks have been flat on the ground dead and with the rate cuts they gained around 5-15% in the past week. Will this break a major downtrend? Time will only tell us and then make our own decision to buy or wait…
Todays big swing I think at least for the short term will make stocks rally. But if you watch big stocks BIDU and GOOG they dropped! Really tells a lot about the market including RIMM and buddy AAPL. These big tech stocks didn’t go with the flow and they are actual profit machines.
Okay so again I really fucked myself over. I bought my AAPL Jan 220 Calls entirely too early (@ $190 and apple currently @ $178). I suppose I was more “eager” to get in on a low price on apple and again buy options “cheap” then wait for better timing. I’m starting to understand that technicals mean little if you are eager to buy a stock and mean more when you are patient and the timing is right.
For instance my options I paid $.90 for now are worth a mill $.04 you are talking a mega percentage loss. Again, if I was patient and waited to buy my options the day before the Apple mac expo and picked them up at $.04 I could of bought probably 1000 more contracts for the price of 40 contracts (or roughly a $4000 trade) and my profits/loss would of turned out completely different.
I’m already factoring in I will lose my entire $4000. If something wild happens for some reason and the price goes to $200 by earnings I might get lucky and make just it back.
But if I was patient and waited and bought 1000 contracts at $.04 ($4000) realistically with ANY positive news at the expo and realistic very positive earnings I could of easily walked away in 3 days with a realistic 500-1000% profit or $20-50k profit if the stock moves to $200 or even $190. So again lesson learned. I wonder which year will my magic formulas start working or should I say I actually trade more smart, more patiently.
I can do this. I KNOW I can. I’m not smarter then anyone else or have an more insightful knowledge then anyone else, but I feel deep down inside convinced I can master this trading and make a living out of it if I can just discipline and keep patient all the time before making a decision to execute a trade.
I can always save up another $4000 g’s to trade next years Apple Mac Expo, but how long will Apple’s winning streak and big boy competition style go on for? I definitely AGREE that with the information age the digital industry is totally taking over entertainment and the home meaning digital movies, TV’s, and computers getting more robotic and innovative.
Recently I finished Alan Greenspans book and it ended basically saying that the baby boomers will bust the market just like so many other books like Rich Dad Poor Dad’s Prophecy and Boomernomics which I’m reading right now. Although the book was published it is very accurate on baby boomers and the information age become ultra successful. The only thing is is 100% wrong about is the housing market falling and prices never increasing. What baloney. It shows a major trend line from 1900’s to 1998 with a steady increase and then suddenly in 1999 to 2050 it falls straight down 30%? That makes no sense. You know the “trend is my friend” what were these economists thinking? The trend will just break and never move up again? One economists in the book they ruled out by himself believed there would be continual home price increases in another future bubble (wah-lah currently). I still think real estate is a good long-term investment. Home prices do go up even with big downs they have proved to build equity and create financial freedom for landlords and retirement equity money to sell off. I currently have $60,000 equity in my home it may come down some for a few years but I plan for my home to be worth 2-3x it is currently creating a nice seperate nest egg for me to sell later on and in the meanwhile have the mortgage being paid by rent.
well good luck and good trading for todays Apple Mac expo 2008.