Pete Kendall's Socio Times: A Socionomic Commentary

The Gathering Pensions Storm
June 5 2006

The baby boom generation has been described as a pig going through a python. The problem is that the pig is getting close to the end of the python. Many baby boomers are facing retirement without adequate savings of their own. Together with Medicare trust funds that will be exhausted and inadequately funded corporate and government pensions, you have the makings of a potential crisis.

The problem for financial markets is twofold: First, the underfunding in corporate and other pension funds will cause individual firms great hardship, making those with high legacy costs uncompetitive. Second, the underfunding at the state and federal government levels will cause tax hikes, which will alter regional and international competitiveness. We currently estimate that U.S. corporate pensions are underfunded by about $140 billion. Add the cost of other postemployment benefits and the deficit doubles. State pensions are underfunded by $284 billion.
Business Week

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The Pig, The Python and The Bear Market
By: Pete Kendall, June 8, 2006

We are entering a large-degree third wave, which is the recognition phase. It is time for old bull market arguments to be refashioned into bear market arguments.
The Elliott Wave Financial Forecast, June 2005

Boomer bust chart

The news clips on this chart are representative of the transformation baby boomer’s retirement accounts have undergone since the all-time highs. Back in 2000 when the S&P was within a few points of its all-time high, “boomernomics” was slated to drive the market higher for years to come. The bear market changed all that, however. By late 2002, when most indexes were close to their lows for the bear market a whole new paradigm backed by some of the latest academic studies revealed that baby boomers were actually going to drive prices lower as they withdrew from the market to fund their retirements. Now after just one big tick down on this monthly chart, the ugly side of the baby boomer investment story is surfacing again. For those of you that have been rummaging around in the back issues of this site, this story about the “Gathering Pension Storm” probably sounds somewhat familiar. Sociotimes discussed the dark side of the pension story back in July and November of last year.  In June of last year, EWFF explained why the tale of the pig and his python doesn’t turn out to have the happy ending so many have been holding out for. And here’s the full reference:

June 2005, EWFF
The conventional wisdom about the investment buying power of millions of baby boomers is on its way out — again. The Wall Street Journal reported earlier this month:
As Boomers Retire: Will Stock Prices Get Crushed?

The 1946-1964 baby boom = 1990-2008 investment boom equation dates to the start of the 1990s bull market extension when it was referred to us as the “Pig-in-python theory.” In 1998, as stocks were cresting, it was the subject of a second best-selling book. As EWFF noted in January 2003, The New York Times first re-cast boomers as “a force for the bear” with this headline: “16-Year Slump? If So, Blame It on the Boomers.” Why now? Because we are entering a large-degree third wave, which is the recognition phase. It is time for old bull market arguments to be refashioned into bear market arguments, as EWFF said they would be back at the all-time highs.

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