Money, Markets and Boomers

Your local weather forecaster will, if she is honest, tell you that forecasts beyond 3 days are likely to be less than accurate. The efficacy of economic prognostications deteriorates sooner. Despite this I have agreed to take on the task of projecting long-term economic trends for MoJo's 2000 Sessions column.

The wants and needs of the Baby Boom Generation has driven the economy of the last half of the 20th century and we can expect, of course, another 20 or 30 years of population primacy, if only by shear numbers. But with our natural life-time drawing to a close in the 2020's and 2030's and our traditional retirement from employment reaching its peak in the 2010's and early 2020's, how will the Boomers effect the future long after our passing from the labor force and this life?

Some will say that we've had a great ride. We've seen changes only envisioned in fiction by earlier generations. But the real excitement is still to come.

We've seen technology wipe out whole categories of jobs, but the tables are about to turn. The retirement of masses of skilled and experienced workers, from the factory floor to the boardroom, will require technological advances simply to keep up with the basest of industry's need for workers. Learned professionals will be in so much demand that corporate locations, and even population shifts, will be determined by their preferred living location. The growth of remote workers will continue as technology allows easy communication and the shortage of workers allows the remainder to demand a more comfortable work environment. Boomers are used to having markets and workplaces change on our whim, but don't expect to see all of this by next Labor Day. Although the trends are indeed becoming more evident now, the timetable of the future is more extended.

Some of the most significant changes to our culture will come from the accumulation and redistribution of wealth. The fear that Social Security will go bust, or otherwise be unable to provide decent support for retirement will generate a number of changes, both cultural and economic. We expect that retirement will be deferred, in whole or in part, for a large number of Americans and the huge inflow of funds from retirement plans to the stock and bond markets (either directly or indirectly through mutual funds) will not only continue, but grow substantially. It is the growth of funds in the capital markets that will have the most impact on the future of this and following generations.

The largest growth block in capital investments will occur over the next 15 to 20 years and generally track the characteristics of the school population booms of the 50's. As long as confidence in the capital markets stays relatively high this inflow should not be substantially interrupted, although shifts between stock and bond investments may occur as financial and political news affects market expectations. This should be, absent catastrophic occurrences, the largest and broadest accumulation of wealth in the history of the world.

This growth of investments, especially in the stock market, does have its potential dark side. Stocks are already massively overvalued relative to their real worth. A return to real value would wipe out a huge portion of the accumulated savings of the generation and spawn a depression with extended fingers into much of the economic life of the world. Government bonds are somewhat safer, but their return is too weak to satisfy the growth expectations of the Boomers and rising bond rates would have a deleterious effect on the whole economy. So, for now at least, stock are the most attractive game in town for a rapid and hefty return on investment.

While the accumulation of wealth should help to ease the financial anxiety of the aging generation, the largest beneficiaries may, in fact, be our children and our children's children. A massive transfer of wealth, substantially larger than the much-heralded current transfer from our parents, will occur in it fullest bloom during the 2020's and 2030's. Long before they retire their financial future will be secure, at least those whose parents were able to participate in the investment boom.

The growing disparity between haves and have nots may well be ameliorated by the expected growth of employment opportunities and access to education and training, but most of the responsibility for the increased accessibility to wealth will have to come from the business community, which until now has been less than effective in implementing political and social changes necessary to meet their own long term needs.

Hold on tight...the ride will have its twists and turns and test your stomach severely.