April 29, 1996 The Idea The stock market is rising. Seems like it is rising almost everyday with new highs reached the norm rather than the exception. With the Dow Jones Index at over 5600, is it overpriced and ready for a fall or what? After all, wasn’t the stock market just at the incredible 3000 mark? What is happening? I believe that a major shift has occurred in the stock market due to several factors, the most important of which is the baby boom generation. Envision a snake that has eaten a pig. You see the lump of the pig moving through the snake as it is being digested. The same with the baby boomers moving through life. There are so many of them and with the paucity of depression babies before them and baby bust after them, their exaggerated numbers have the power to force change to whatever they want. This same generation that caused schools to be overbuilt to accommodate them, that caused colleges to expand to accept them, that changed our culture to suit them, that found out there were not enough corporate jobs for them, that created “entrepreneurship” when they needed to find jobs that suited them, that created the real estate boom of the 1970s and 1980s when they wanted to live somewhere, will now, I believe, cause a run up in stock prices in the stock market which will precipitate a plummeting stock market on their way to destroying the social security system as we know it. The Meaning I predict that the stock market, without considering flat tax or any other radical tax code changes, will rise for at least 10 years because in 1996 the first baby boomers are turning 50. The newspapers and pundits will declare that the baby boomers are graying, with every day more people are turning 50 than have ever turned 50 before. As the boomers turn 50 they will be painfully reminded that after 25-30 years of job hopping they are likely to be without pensions or other retirement funds. Therefore, they will have to provide for their own retirement. Since the “boomers” generally are not particularly financially savvy they will buy mutual funds and not individual stocks as the investment vehicle of choice. In general, I think they will be buying funds that are growth or index funds. These funds play “follow the leader” with investing so I believe the price earnings ratios of the growth stocks and blue chip stocks will rise to limits not seen since the “Nifty Fifty” of the Sixties. But the market cannot go up forever. Since I believe this is a stock market funded by liquidity, some time between 10-15 years from now I think the market will decline by at least a third. This will be because of Boomers starting to withdraw funds when they reach 59 ½ years of age. At the point of time when it becomes evident that the outflow of funds will approximate the inflow of funds the market will head due south and then stay level for at least a generation. The length of the bull market will be extended if social security is privatized but it will only put off the date of reckoning. The Opportunity I believe we are in a unique position of opportunity to take advantage of potential growth that has not been seen in approximately 70 years. I suggest you contact your stock broker for suggestions as to how to take advantage of this 10 year ride. We remind you now that Howard Lisch is a registered representative and financial consultant who can further advise you as to how to take advantage of this once in a lifetime situation. As always, if you have any questions about these or any other financial matters, do not hesitate to call me.