Written by Steven Orlowski, Editor, Safe Haven Investor, taipanpublishinggroup.com
Back in the late 1990s, right before I joined Giant Mutual Fund Company (GMFC), I worked for a large brokerage firm.
It was the tail end of the “good old days.”
Back then, wholesalers would regularly visit branch offices of brokerage firms to convince brokers to sell their products — usually mutual funds.
They’d come armed with the legal essentials… prospectuses and brochures. But the way they really tried to convince us was by handing out free stuff like T-shirts, golf balls and umbrellas. And the kicker: They’d take the office out for dinner and drinks.
This behavior is largely outlawed today, but back then it sure made wholesaling look like a great job.
One such visitor brought with him a book, an unusual item to hand out. This was a rarity especially because the book wasn’t written by the wholesaler nor was it published by his employer.
The book was The Pig and the Python by David Cork. The thesis of the book made a lasting impression on me.
The idea was simple.
The baby-boomer generation was like the body of a pig swallowed whole by a python. The snake represented a timeline for the journey of baby boomers from birth to death.
The generation was so large that, like a pig in a python, it created a large bulge in the python. It was a proxy for the economy and everything the boomers would need, want or innovate through their lifespan.
The book referenced specific instances of influence such as how in the 1950s the baby boomers’ large population was a boon to the diaper and baby food industries… In the ’60s and ’70s the baby boomers altered the trajectory of college education… In the ’70s and ’80s the housing markets were affected.
And let’s not forget the stock market.
The baby-boomer generation spans the post-World War II period from 1946 to 1964. The stock market had a “boom” in the aftermath of WWII. But starting in 1966 it fell into a slump that lasted 16 years.
During this period an investor in domestic large-cap stocks, the Dow 30 or the S&P 500, suffered through many significant up-and-down gyrations but made no lasting money.
By 1982 the indexes were at the same levels they started at in 1966.
But by 1980 the first baby boomers were entering their peak earning years. A boomer born in 1950 turned 30 in 1980.
A mix of factors kicked off what became known as the “Great Bull Market,” the period from 1982 to 2000. The baby boomers were socking away money in IRAs and 401(k)s and investing in the stock market through mutual funds in a way never before seen.
The stock market in the United States returned nearly 17% per year during this period — it lulled a generation of investors into a trap known as “buy and hold.”
I’ve held on to The Pig and the Python, and although I haven’t read it through since 1998 I keep it around as a reminder of what’s to come: Those boomers who in 1980 were entering their peak earning years are now retiring.
And what do most investors do when they get older and close to retirement? They sell their stocks.
By 2000 the eldest baby boomers were in their early 50s and planning for retirement. They made adjustments to their portfolios.
In March of 2000 we saw the end of the Great Bull Market. The S&P 500 peaked at an intraday high of 1,553.11 and then crashed, losing more than 50% of its value by its October 2002 low.
Of course this was not entirely due to the boomers. Tech stock valuations were ridiculous at the time. But the boomers certainly played a part.
Our government did its best to reinflate that stock market bubble and succeeded in creating a bigger and more devastating bubble — real estate.
By October 2007 the S&P 500 peaked intraday at 1,576.09 and then crashed once again, falling almost 60% to the intraday low of 666.79 on March 9, 2009.
The stock market has recovered much of its losses, but many commentators are now calling for another crash.
Some say a crash that could bring the Dow as low as 3,000. That would be a loss of 75% from today.
I won’t make such a prediction, but a quick glance at the S&P 500 chart below suggests another 40% or greater decline is within the realm of possibility.
I know boomers have been pulling money from the stock market… They are my clients and they are worried.
Many haven’t regained losses sustained 10 years ago. The second collapse did nothing to improve confidence. Another would destroy it.
Meanwhile, GMFC and its competitors continue to tell investors, “Hang in there. The market always goes up over time.”
Do you want to know a secret?
GMFC bases part of its profit projections on how the S&P performs each year. That means if the S&P is higher, the company makes more money.
And, by the way, your friendly financial adviser at GMFC gets a bigger bonus thanks to higher profitability.
Not only is he not allowed to tell you the market is going to crash… he’s paid not to.
Did you ever wonder why the asset allocation models GMFC and its competitors use are always overweighted to domestic large-cap stocks even though foreign markets and especially emerging markets have outperformed domestic stocks for more than a decade?
In one sense we can thank GMFC for not telling all of its investors to sell. If they had, the markets would have gone down a heck of a lot more than they did in 2000 and 2007. But on the flip side you’ll never be told when to get out.
This is what I call a “Generational Shift.”
The pig is nearing the end of the python. It’s almost completely digested.
It’s not over yet, thankfully for the boomers; however, the pig is changing shape. And as this process continues, we won’t know exactly what it’s going to look like until it happens.
What I know is that the future will be different than the past and in the pages of Safe Haven Investor I will do my best to let you know what the best moves are.
Until next time…
Publisher’s Note: Have you heard of Government Document RL34443? It’s a “one-letter law” that just triggered phase one of the retirement crisis. Thanks to this little-understood rule, 78 million baby boomers are likely headed toward a financial trap.
Discover what happens next as the past 37 years of deception comes to its wealth-annihilating climax in Safe Haven Investor’s latest special alert.
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