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29 of 32 people found the following review helpful:
5.0 out of 5 stars
What If Stock Multiples Plummet When Baby Boomers Retire?, December 29, 2000
I have read no better book concerning issues about retirement costs for Americans born between 1946 and 1964. Although too limited analytically in some areas, many valuable observations are made that will stimulate your thinking. This book should become the basis for a thoughtful national discussion, and much personal introspection. This book points out a key limitation of many investing books. Those often assume that future stock-price growth will be like the past. A thoughtful exeption to that conventional wisdom is provided by Harry S. Dent, Jr. who projects two extended downturns as the average age in the United States increases, resulting in abrupt shifts in consumption and savings. Mr. Parker intelligently uses that forcast to considre its consequences, while Mr. Dent continues to focus on the likely bull market through 2008. The key argument in this book (as documented by Mr. Dent's work and Mr. Parker's analysis) is that stocks are a dangerous way to fund your retirement unless you sell them all out long before 2008. Earnings growth of larger companies is probably going to slow in the subsequent decades and stock-price multiples will plunge. The book also contains many thoughtful analyses about the focus on creating ever higher stock-price multiples that are encouraged by such ideas as EVA (tm). This creates "phantom" stock-price-based profits that cannot be used or spent by most people, and which will eventually evaporate in the scenario described here. Seeking higher cash flow returns is certainly not the only way to add value to a company, a community, and to a society. The book argues for refocusing economic activity on providing more employment, more sustainable profits, greater social and community benefits, and services that seniors will need. The book argues that savings be funneled into smaller, newer companies that will not receive standard venture capital funding. The author opposes having any of Social Security funds be invested in publicly- traded stocks. The primary scenario considered is one whereby the next generation cannot and will not pay more than a certain amount to fund retirement for seniors. The ratio of employed-to-retired is now about 3.4 and will drop to about 2.1 around 2030 (when Social Security payments to the government will no longer cover expected pension payouts). Some seniors will have to get by on smaller pensions, and many will see their savings either be too small or shrink in value as stock price multiples decline. There will be a lot of unemployed and needy seniors, as a result. How will they survive? Mr. Parker thinks about society in systems terms (see The Fifth Discipline by Peter Senge). The greying of America has many more consequences than just for Social Security. But most of the discussion to date has focused on that area. Where, for example, will we get enough nurses and other health care workers? I suspect that we are about to enter a period when it will make a great deal of sense to open the doors much wider for immigration by well-educated people in areas where we have and will have major shortages of talent. I think that Mr. Parker misses some important points that could improve the situation. For example, we currently have a booming economy that is short of skilled workers. Seniors are being recruited back into employment by many companies, and more could be done. When Social Security was established in the 1930s, few workers lived beyond 65. The program was designed to just take care of the few who did. If the current program were like the original program, the initial age to draw a pension would be well into the 70s. By 2030, it might be into the 80s. Obviously, for those who are ill or unable to work, benefits should be available sooner. Second, population growth is still very rapid outside of the developed world. So there will be plenty of people to buy goods and services, and sustain stock-price growth in those economies. You may have to buy your stocks for companies in Latin America or in the Far East, but you can count on booming generationally-driven growth well past 2030, as detailed by Mr. Dent. As a resuslt, I think that it makes good sense to have Social Security funds put into indexed worldwide funds that are overweighted towards the up-and-coming successful countries with younger populations. Third, the best companies grow to larger sizes and in less time than every before. Management practices and technology are improving at an unprecedented rate. For such well-managed companies, stock prices will grow rapidly even if multiples are depressed. Retirement investments will be attractive in such companies. Fourth, fast moneytary growth created a lot of the higher multiples. The Federal Reserve is fixing that problem now. When multiples go down with tighter money growth, the problems described here will mostly go away. Despite my quibbles, our companies and government should be reformed to make more productive use of our human and financial resources. I like the concept of a virtuous company, one that increases the quantity and quality of satisfactions received by everyone who comes into contact with the company. A good modern example of this is EMC Corporation, a maker of computer storage devices that encourage faster and cheaper knowledge sharing that accelerate economic and social progress. I suggest that you answer the excellent questions in the book's appendix. Also, rethink your retirement plans, and those of your parents and children. Spend some serious time together becoming better prepared, in case Mr. Parker's interesting scenario turns out to be correct. Live long . . . and prosper!
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