A 500 point Santa Rally? More Please!
The European Central Bank and four other central banks agreed to extend swap lines and make dollar borrowing cheaper. It was the news the market has been expecting, the band aid has finally arrived.
So how has it happened?
To cut a long story short, the printing press has been re-oiled and turned on. Don’t expect the outcome to be a smooth ride and be over quickly .there will be major issues to deal with for years to come. As we understand it, the European Central Bank (ECB) isn’t allowed to lend money directly to European governments. So, the Europeans need a plan.
A clever way round this problem is to hand cash to the IMF, on the condition the IMF hand the cash to Italy and Spain. Or any other European nation in the lurch.
That way the ECB can buy government bonds and national governments can keep spending. If the market stops buying government bonds, no problem, the ECB will give more money to the IMF, to give to European governments.
Well the market rallied on that news.
The Dow gained 787 points, or 7 percent this week. Putting it back in positive territory for the year — it’s now up 3.8 percent for 2011.
The Nasdaq gained 7.6 percent this week and the Russell 2000 jumped 10.3 percent.And the Australian market shared in that rally over a 7% gain.
It was the biggest one-week gain since… just two months ago in October. Between 5 and 11 October the index gained 9.2%.
And that was the biggest gain since… just four months ago in August. Between 9 and 15 August the index gained 7.4%
It sounds like the movements of a Santa Rally, wait til they find out that Santa isn’t real!
This week I would like to show you some survey data I have come across on the Baby Boomers Retiring. I am a Baby Boomer myself and if these numbers are correct it could be a Demographic change already occurring
The survey is from (AARP) American Association of Retired Persons analysing that 70% of baby boomers don’t have enough in assets to retire for 2 years and 40% don’t have enough for 1 year.
And we know this, baby boomers are saving not spending right now, their retirement funds have been hit hard not once but 2 or 3 times in the past few years.
I was surprised to see the statistics of superannuation losses higher in women than men , due to the smaller amounts we have in super as opposed to the men, because they generally stay longer in the workforce longer while women take time out to raise the kids.
Baby Boomers were heavily influenced into the stockmarket by fund managers as a way to grow their retirement wealth, except they had no knowledge of what they were doing and were forced to ride it out…and well, we know what happened next…
The Savings and Bank Loans Collapse 1987.
The Dotcom bubble in 2000.
The GFC Crash in 2007 .
Many are having to delay retirement to rebuild their assets. In some cases losses are as 50% or higher.
Two things happen as a result of this. First, people stop spending and start saving more, bigger family homes and properties are sold as we scale down we stay in the workforce longer so it requires a lot new jobs to be created for the new who are entering the workforce.
Another staggering fact is that most 50-64 year old Australians have their net wealth tied up in the family home, which they may now need to convert to income for retirement. But are there buyers in this part of the market to support the sales? When it comes to young families that are struggling, many will not be able to afford a higher mortgage even though they may need a bigger home.
Baby Boomers control a large proportion of household wealth in Australia and the US. If they have to sell assets including real estate or stocks they could potentially control these markets, and I am concerned because the US figure is a staggering $45 Trillion on the Stock market.
In the past 20 years Baby Boomers have been in that spending cycle, upgrading into bigger homes as they had more children, buying all the flash new gadgets from big screen TV’s, nice cars, household furniture.
I find myself in the same situation. While my children were growing up my spending cycle was focused on different items, now as the children have grown up and left home and started their own families, my spending habits are dramatically different. I have down scaled to a smaller house, sold most of the family toys and are looking to do some newer adventures like travel overseas and holidays.
Although many Australian boomers may express confidence about their retirement finances, this confidence may be misplaced. Australia has the fourth highest old age poverty rate in the OECD, with more than one in four older Australians living below the poverty threshold on the basis of this measure (OECD, 2009). Further, of the 30 OECD countries, only Ireland’s superannuation funds had a worse performance than Australia’s in 2008 due to the economic downturn (OECD, 2009).
Hence a new inspiring wave of Baby Boomers are now taking control and repairing the lost retirements by learning how they need to prepare for retirement once again.
