Friday, October 18, 2013

The Dread Stock Market

As every old-timer will tell you, candy was a penny and gas was a nickel. Econ 101 profs will likewise extrapolate why a dollar’s purchasing value will decrease with time. A dollar today will be worth less tomorrow.

So be it.

Stanley Druckenmiller is the 184th richest American, according to Forbes, valued at $2.9 billion dollars. However, he has a passionate interest in making sure people younger than him have money when they get to be his age (he just turned 60). The following video clip, too large to embed, details his argument from 14:00 – 40:05:

If however, you don’t have half an hour to watch the clip, the points are these:

·         Federal entitlement payments have risen since the 60s from 30% to 67% of Federal budget outlays
·         Of these transfer payments, over 50% goes to the elderly, and 15% to the young
·         Since 1983, those over 55 have increased their net worth by 120%. Over 75 by 149%. So the ‘one percent’ is also quite old. Not only that, but those aged 30-40, for example, have seen their net worth decrease over the same period by 20%
·         The national decrease in poverty rates has only affected the elderly, decreasing from a high of 35% in 1960, to a low of 9% now. However, poverty for the young has actually been increasing since the late 60s, and now stands at over 20%
·         2013 marks the start of the retiring baby boom, which began in 1948, and will continue for twenty years, making all of these statistics worse unless action is taken.
·         And, as more retire, fewer will bear the burden of support. The number over 65 will increase 102%, but those 18-64, the workers, only by 17%
·         Furthermore, right now, social security is 5% of GDP, and Medicare, Medicaid, etc. is 5.5% of government spending. Over the next 20 years that we have to take care of the baby boomers, it’ll double. By 2080, it’s a quarter of all government spending.
·         The fiscal debt gap, at $12 trillion, doesn’t account for any of this. If it did it would be closer to $200 trillion.
·         Today, in 2013, the elderly receive about $330,000 in government benefits over the course of their lifetime. For the unborn, who are paying this forward without their knowledge, they actually will be in debt to the government $420,000 over their lifetime, paying for the boomer’s retirement.
·         If we decided to fix this with taxes, all taxes would have to increase, across the board, 55% in 2013. If we do nothing by 2030 that percentage increases to 72%. If we decide to fix it with austerity, the government would have to rein in spending by a whopping 36% now, and 44% in 2030 if not dealt with. Clearly, there will have to be a mix of each.

Bottom line: retiring baby boomers are going to make it impossible for the current generation, and our kids, to retire.

Combine this upcoming catastrophe with the fact that the dollar loses value over time. Compound that with the interesting fact that about 30% of the underemployed are 18-29, compared to 15% for those over 65. Those figures are from 2010, but the underemployment has increased 3% overall since then. So our generation is out of work, or not earning what we should. And we are going to need a lot of money down the line to take care of this retirement problem for the next twenty years.

Half of Americans own stocks, at 52%. But this also includes 401k holders. Before the recession it was at 65%. Of course, in lean times, people don’t want to set aside money for something as volatile as stocks. Who wants to risk it? Who has the disposable income to invest?

Unfortunately, for our generation, the only way historically to ensure your dollar would be worth more tomorrow than it is today, is if you put it in the stock market. Even if we didn’t need the money for retirement, let’s not forget the $1 trillion in debt our generation owes for student loans. You don’t want to pay that off with dollars that are worth less over time, do you?

So are we investing in the stock market? Those who are between 20-30 are investing conservatively, around 43%, compared to 31% investing conservatively amongst the boomers. The actual numbers of youthful investors seems to be unknown. Based on my professional and semi-professional friends it seems as though it’s not many, but maybe that’s just my small sample size.

I’m conservative with my personal finances, with I have a growing savings account and Roth IRA. I have no stocks. I try and look at Wall Street Survivor, and all the terminology gets me in a frustrating muddle. Beyond my financial illiteracy, though, is a more pervasive skepticism of the stock market in my age bracket. Our trust was shaken and little has been done to reaffirm it in the years since 2007. Six years have passed with us still the largest section of unemployed workers, and underemployed, and with incredible student debts.

And now we’ll have to pay for our parent’s retirements with our entitlement money. All while our purchasing power decreases. We can either get serious about stocks as a generation, and choose to trust that which has harmed us so often as a country, or we can change politics.

For, if we take our money to the Wall St. shell game, what will protect it? Not Glass-Steagall. Should we trust the market with our money, when the regulators of the market come within an hour of default, having shut down the government for two weeks?

The point persists: no matter what you think is important, changing government is actually the most important thing. But until we raise our voices and get really angry, and actually vote in numbers, and maybe even take to the streets, the older generation is going to keep ripping off the young, robbing us of our inheritance. We face personal, tragic, impoverishment. We need to rise up and actually make our point to the nation that we will not suffer horrific futures, and decades of poverty, without a fight.

As Stanley Druckenmiller put it:

 “When [I was] your age the Vietnam War was raging and I watched a group of young people, who saw a clear and present danger – back then we didn’t have an all-volunteer army, you got drafted…You were literally looking at if the draft number came up the wrong way you were going to be in the rice paddies getting shot at for kind of a silly war that a lot of us didn’t believe in. I watched young people at that time bring down a President and change the whole political spectrum and end that horrible war. And what I want to say to you young people tonight is, while we’re not talking about bullets flying, you are in clear and present danger…”

So. Will you go buy stocks, or will you fight for a righteous government?


Karen said...

Re: "Our trust was shaken and little has been done to reaffirm it in the years since 2007." In fact, the stock market is much higher now than it was in 2007. If you'd invested then, you'd be much better off. You may distrust Wall Street, but it's one of your only chances / hope to get ahead. Investing conservatively when you're young is NOT wisdom; it's fear ...

Dave Stangl Jr said...

By your logic, what happened in 2007 is of no consequence. The stock market is up, who cares why?

Karen said...

Also, Social Security is called an "entitlement" b/c people deserve it. Here are some facts, busting myths such as the old are going to break the backs of the young:

Karen said...

@Dave, I didn't say it was of no consequence. I also did not say that the reasons it crashed were of no consequence. All I said is that it has not only recovered since the crash, but is now higher than ever. I didn't discuss any reasons for either of those things. What I DID say is that young people should invest in the market. It's one of their best chances of getting ahead.