The boomers created this monster, and now they will kill it(ZT)

interesting post from another board	bearking	NEW 2/1/2008 7:57:22 PM
Unfortunately,the glut of baby boomers is now moving into the years approachingretirement. The leading edge of the boomers already HAVE retired. Whilethe baby boom generation spans many years, it is a fact that people whoapproach retirement become more conservative. They shun risk. They takemeasures to preserve capital. They absolutely CANNOT afford to "investfor the long run" because for them there IS NO long run. This changesthe entire psychological make up of the market, as risk aversion soarsand patience for volatility evaporates. We can see risk premiumssoaring everywhere, from health care costs, to tighter lendingstandards, to bond insurance. The baby boomers, as they pass into a newretirement psychological state, have triggered an avelanche of systemicchange. Long term yields are so low because boomers are increasinglyholding their cash in safe places for the LONG RUN. The yield curveconundrum isn't at all perplexing, Mr Greenspan -- it's smart boomersbattening the hatches. They realize that social security &corporate pensions cannot be trusted, PARTICULARLY if the economy headssouth. The most alarming part is that they have just started. The 50year "buy and hold" mentality instantly becomes invalid. Thegreatest problem of all is that the wealth of many baby boomers is tiedup in equities. Worse -- MUCH WORSE -- it is tied up in the SAMEEQUITIES. The vast majority of boomers with 401k plans, personalinvestments, IRAs, etc own Intel and GE. They own the same S&Pstocks. Everyone owns AAPL and GM. There are 77 million baby boomers,and the bulk of their equity holdings are in approximately 600 stocks-- the S&P 500, DJ 30, and the Nasdaq 100. This is a fantasticoversight that almost NO ONE recognizes or appreciated. The greatestcrime of the century has been to encourage a glut of 77 millon peopleto own the SAME THING when they retire at the SAME TIME. This is afinancial planning gaffe of massive and devestating proportions. Thesystemic market risks lie in too many people being on the same side ofthe trade. That's effectively what causes a bubble to deflate. The techbubble of the 90s deflated because EVERYONE had YHOO, AMZN, INTC, JNPR,ARBA. And everyone tried to sell those same small number of stocks atthe same time. So what we have now is a group of 77 millionpeople who own the same 600 stocks, and who are becoming risk averse.It doesn't take a rocket scientist to realize that if you have 77million people who own 600 stocks and are attempting to preservecapital that you're going to have a problem of massive proportions. Themarkets are down 10%+ already this year and the boomers are sweating.Their fingers are hovering above those sell buttons. It will take justtake a tiny fraction of those anxious people to crack open markets.That in turn will create wave after wave of panic as the 77 millionboomers try to preserve whatever they can of those 600 stocks. Becauseof their concentration in the same stocks, bids will crumble, indiceswill tumble, and selling will accelerate. There has been anargument that boomer retirement selling will be spread over many yearsas they slowly and leisurely retire. That's in a fantasy world. In thereal world, someone approaching retirement in a chaotic market takesthe money before the other 77 million people take it. It's theprisoner's dillema (a Nash equilibrium problem) in full effect. As risksoars, individuals take the money while they can. As people take themoney while they still can, risk soars. Who the hell cares about a 15%tax penalty if it means you avoid a 90% value meltdown in a longprotracted crash? You end up with 77 million sellers on 600stocks, with no one on the other side of the trade. Will the babyboomer's kids be on the other side of the trade? No way in hell, sincethey're up to their eyeballs in debt. What about the Chinese? They'reon the brink of their own bubble crash too. In effect, there is NO ONEon the other side of the trade. The earnings power that gave us stablebids in the 80s and 90s and managed to make the 87 and 97 "crashes"irrelevant no longer exists. Crashes now are serious because there isno guarantee that they will bounce back. There is also one othermajor reason why this will be deep, fast, and hard: tech bubble. Manyof the more wealthy boomers have painful memories of the tech bubblecrash of 2000, and will not be nearly as willing to "ride it out" thistime. They know first hand and in fresh memory that sometimes a marketdoesn't bounce back and that "buy and hold" is a fallacy. This iscritical to understand as a psychological underpinning of the comingcrisis. I predict that over the coming few months we willcontinue to see a staggering and relentless crash in the markets. Also,a crash doesn't have to be a 1 day event. We will start seeing it getpounded into submission as boomers panic and smart money lets thempanic. 77 million people on the same side of the trade with no one onthe other side has never occurred before, but it soon will. And sinceeven after a crash tens of millions of people will be severelyunderwater, there will be no bounce back, as rallies will be sold into.This will indeed be a crash that will result in a long, deep depression. p.s.If you are smart and understand how Wall Street works, you will knowprecisely why this meltdown began on January 1. It is no coincidence.There is a very good reason why January 1 was the perfect day for itall to begin, and the reason completely validates and supports mytheory above. The boomers created this monster, and now they will kill it.