YAHOO: Oh my!
Question: I will say one thing. John is technically correct. However, if all the “new money” coming in to the market STAYS in the market (as is likely until 2010 – when the 1st boomers start to retire), then this “new economy” as it is called will have some merit. Unfortunately, the money has to be withdrawn sometime, and then the “old economy” will reassert itself. What happened in the 1929-1938 period had as much to do with population and its desire to save vs. invest as it will in 10 more years. This “new economy” still follows the old rules, just at a different quantum level. Keep an eye out for a large number of early retirements. That will be your first warning to get out of the market.
Answer: I would point out that putting money from 401K’s into the market isn’t much different from borrowing, you are just taking from the future instead of the present. (If there is extra income, it’s coming from profits on investments.) Even if I were to agree fully that they are not borrowing, in most cases they are investing with money that they are not using to pay on what they have borrowed. They are carrying a good deal of debt on credit cards, car loans, mortgages; with the expectation that the stocks will eventually cover it all. They may not be borrowing to buy stock directly, but they are funneling money, in essence, from other type of borrowing. So, if we were to have a 20’s situation, they are still going to be as much in hock. They will not owe the money for the stocks, but everything else. What’s the difference?
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