'Aging baby boomers may hold down U.S. stock values for the next two decades as they sell their investments to finance retirement, according to a paper from the Federal Reserve Bank of San Francisco. U.S. equity values have been closely related to demographic trends in the past half century, adviser Zheng Liu and researcher Mark Spiegel wrote in a paper released by the bank today. In the context of the impending retirement of baby boomers over the next two decades, this correlation portends poorly for equity values. The equity-price-to-earnings ratio of U.S. stocks tripled from 1981 to 2000 as Americans born between 1946 and 1964 reached their peak working ages, Liu and Spiegel said. Overseas investors demand for U.S. stocks might help mitigate the effect of a baby-boomers sell-off, yet the impact would probably be limited, they said. Foreign demand for U.S. equities is unlikely to offset price declines resulting from a sell-off by U.S. nationals, they said.' http://www.bloomberg.com/news/2011-...epress-stocks-for-decades-fed-paper-says.html
When you consider that about 80% of equity holdings are concentrated among top earners there is little likelyhood that baby boomer retirement will drag down the markets much. There is also the consideration that the current under 25 population outnumbers the baby booomers and will be reaching their peak productivity years as the baby boomer retirement peaks. The only thing that would make those predictions true is if the savings rate of this new generation is less than that of their predecessors which the data indicates to be not the case. Data indicates that the current generation of young people are saving more, even with declining median income. We are already in the baby boomer dip but this new generation is saving more so a decades long dip is unlikely as their high savings rate will more than replace the baby boomers withdrawal of their paltry savings.
