Posted in: Market News
Published:
February 15, 2020 2:33 PM UTC

Baby Boomers Pumped History’s Biggest Stock Bubble – It’s About to Pop

The stock market risks an epic collapse as Baby Boomers cash out their wealth from decades of equities growth
  • Baby Boomers have accumulated the “most disproportionate wealth in all recorded history” through the stock market and property.
  • As they exit for retirement, we’re sleepwalking into a crisis, argues former hedge fund manager Raoul Pal.
  • Readjust your retirement expectations or look to bonds, emerging markets, and cryptocurrencies for an alternative.

The stock markets are carving out record highs seemingly every week right now. It’s a bubble. The biggest one in history, pumped up by the insane wealth of Baby Boomers over the last 30 years. 

That’s the view of former hedge fund manager Raoul Pal. In his latest Real Vision video, he warned that Boomers are sleepwalking into a retirement crisis they created.

Baby boomers created their wealth – the most disproportionate wealth in all recorded history – and they’re probably going to destroy it too.

How Baby Boomers pumped the biggest stock market bubble ever

Baby Boomers were fortunate  enough to hit their peak earning years during one of America’s greatest economic cycles. They earned good money and started saving. That money soon began to inflate the stock market.

Those savings went into the stock market. First via their corporate pension plans. And then by the advent of the 401(K)s and the rise of indexation. What that did was create one of the largest equity booms the world has ever seen.

Boomers also piled their money into property, creating the infamous housing market bubble in 2008.

Are we at the edge of the biggest equities bubble in record history? Source: TradingView

It’s not their fault…

Pal is quick to point out it’s not their fault directly. Boomers were just doing what they were supposed to be doing… saving for retirement. The blame lies with pension funds desperately trying to eke out their promised returns.

Your pension fund took this risk for you. Most of you guys didn’t want to take this risk but your pensions did. And they went into passive strategies. And what you did was create this enormous bubble in these momentum stocks.

Explaining the current stock market highs

Boomers are hitting retirement age right now. There are 76 million in the US alone with an average age of 65. Some of them are coming to the harsh reality that they don’t have enough money.

The next part of this bubble phase, driven by the baby boomers is, ‘oh shit we can’t save enough money so we must take as much equity risk as possible again because we’re in our retirement years. Go go go!’

Throw in the latest phenomenon of zero-fee investing and a boom in passive index funds, and you’ve got a late-stage euphoria rally. Pal isn’t the only one to point out this bubble. Infamous “Big Short” investor Michael Burry said the explosion of index funds has created a bubble much like 2008.

When will the bubble burst?

When the Boomers retire on mass, they’ll stop allocating their money to pension funds and may even start cashing out their capital. That puts incredible selling pressure on the stock markets. Pal calls it the “vertical wall of retirees.”

We are now at the vertical wall of retirees. The baby boomers in their mass are retiring every single day. Every single day they retire, we’re getting closer to something that I really fear.

And it’s not just stocks. Baby boomers are selling their homes too. As CCN.com previously reported, Boomers are offloading their enormous rural houses, but millennials don’t want them (and can’t afford them). This is a demographic crisis across multiple financial markets.

How to stay safe when the bubble pops

Pal believes a recession is “dead ahead” (and that we’re heading for a currency crisis) but there are some assets that offer a glimmer of hope. He says bonds will help protect investors if the worst happens. And if you’re looking for returns, he suggests emerging markets and bitcoin.

We’re going to look at markets like India or monsoon countries that have great demographic tailwinds or things like cryptocurrencies that have potentially 10 or 20 years to look.

This is a crisis emerging in slow motion. And like Michael Burry said:

Like most bubbles, the longer it goes on, the worse the crash will be.

This article was edited by Samburaj Das.

Last modified: February 16, 2020 5:57 PM UTC

Ben Brown @_ben_brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.

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