Boomer Economics (Please God, Just One More Bubble Before Retirement?)

Here is a chart of the S&P 500 (a broad measure of the stock market) that begins with the first Baby Boomer presidential administration and runs to the present.

Mmmm...Bubble-licious. When Clinton took office the index was in the 400-500 range. The first spike is the tech bubble which which brought the S&P to a little over 1500 before it burst and brought lows of about 800. Of course by then the housing bubble was well underway and brought highs of a little over 1500 before it burst and brought lows of.... Well, we probably don't know yet what the lows will be. It's not surprising that the current bear market rally has many of the so-called experts talking about the bottom being in place. I'll bet there were a lot of experts who said the same thing during the rallies between 2001-2003.

There never were any earnings that supported the tech bubble, just flat out crazy speculation based on the rules of "the new economy." In the housing bubble, the banks rode to the rescue of the tech crash with fantastic new streams of earnings from exotic financial instruments based on mortgages. We now see that those earnings were illusory. Many banks now trade lower than they did before the tech bubble, let alone the housing bubble. So where is the market headed?

I'm not a financial professional, and I'm sure not your financial professional, so it should go without saying not to invest on my advice. But just in case, I've said it. So, let's get to the speculation.

First off, what I feel most certain of is either the bottom is in or we will next test, and most likely break through, 1186. I think it is very unlikely that we've bottomed, but if we have we should test the July 15 low and then steadily move higher. If, as I think more likely, we haven't bottomed, I see at least some support at 1186, though I doubt we'd hold it. From there you can look back to previous low points, and who knows, one of them could hold. I really don't think we should be too shocked however if we reverted to the 800-900 range. That would still represent a good solid doubling of the index since 1993. Unfortunately, it would also represent the second 50% collapse from the highs that Boomer economics have given us. (What if we couldn't hold that? Scary thought. But hey, don't get down, that 430 level looks real solid. I bet we could hold that. Love ya, Boomers.)

I know a lot of buy-and-holders and 401k watchers were thrilled by the 10/07 highs since it meant they had finally crawled back from the tech bust. It was crushing to realize that it was just another bubble and have to watch their 401k's turn back to 301k's (credit Rick Santelli for the 401k-301k joke). It really spotlights how buy and hold has not been a good performing strategy for some time now. It seems the big-money-Boomers have turned the stock market into a casino, and have fairly well mastered pocketing more than their share when the money starts coming off the table. Of course they don't just hurt the younger generations with this particular scam, but also the less sophisticated Boomer investors who can't really afford it so close to retirement.

There have been some real gains in the stock market. I've mentioned in previous posts that Boomers have squeezed wages for blue-collar workers and even new college graduates. The money that should have been paid in wages and benefits instead turned into shareholder returns. That process alone justifies some of the gains in the market since the '90s. One would think that there have been other real advances in productivity that justify further gains. I mean, it can't all have come from debt spending and inflation, right?...right guys? If we assume that question has a comforting answer, then we have two factors to support strong, legitmate stock market gains and thus limit the downside.

Plus, those Boomers, bless their hearts, are just so darn inventive. Their exotic debt instruments saved us from the tech crash. For all we know they may well be inflating another bubble as we speak.

If not, look out below.