The Baby Boom: Machiavellian Economics & The Economy Today

[Jonny_trigonometry]

Suppose you're a high-powered stock trader in 1946, and you know that there is a lot of 1-2 year olds out there. Would you invest in baby clothes, baby toys, and baby food, or would you invest in cars and airplanes? About 5 years later, would you still invest in baby food, toys, and clothes, or would you start selling your stock after it rose? What would you invest in then? school supplies right (since most 5-7 year olds start going to school then)? what about another 5 years down the line? You'd probably still keep some of the investements in school supplies, but you'd sell the stock in lunchboxes and thermoses and maybe pick up stock in school food service supply companies or something. You'd sell stock in kids clothes and buy stock in teenager clothes, and maybe older kids toys like bikes and baseball gloves. Another 5 years down the line and the baby boomers are about 15-17, now would you invest in baby clothes, toys, and food this time, or would you invest in cars? Of course cars, because the boomers are all learning to drive. What else would you invest in at this point? small companies that hire a bunch of cheap labor like grocery stores, drug stores, and hardware stores? why not, they would do well with all the competing boomers... and so on and so forth.

So, perhaps the economy has done so well since then because there has always been the baby boomer referance to tailor investments. The average age of the population will slowly even out from a sharp distribution to a more shallow distribution curve over time as the baby boom echoes, as each echo is less sharp and less intense. After a while, the population loses the quality of predictable booms of certain age groups and the economy becomes less pridictable, and therefore the stock market loses it's momentum. Hence our current position... What will it take to save our economy from falling? What would those in power (who can create another baby boom if they want to) do to gain more control over the economy again?

Look for more paranoia in the news. If the US is making a case against Iran, I wonder what for? (rhetorical). Iraq wasn't big enough, and wasn't threatening enough... Americans need to be afraid of something in order to be convinced that they all need to go off to war, so expect more paranoia from the administration and in the news. Expect more news about troubles in the middle east, and don't expect the problem to subside, in fact it will escalate to the point where the US is making a case against a "hijacked muslim culture" that must be purged in order to ensure the survival of the world. It will get this bad, and it will get worse to the point where the draft is issued again. Expect more talk about America's vulnerability towards possible terrorist events (all in effort to make americans afraid), and if people aren't afraid enough then, expect another terrorist attack...

I'm no soothsayer, but I have read Machiavelli. Hopefully this whole mess above our heads will go away if we don't let these thoughts bother us.

 

[russ_watters]

So, perhaps the economy has done so well since then because there has always been the baby boomer referance to tailor investments.

A good stock market is more an effect than a cause of a good economy (even though it is somewhat of a leading indicator). Those industries you describe did well not because of high stock prices, but because they sold a lot of goods. Had they not sold a lot of goods, the stocks would have quickly followed them down.

 

[Jonny_trigonometry]

yes, there is a big difference between the stock market and the economy. The stock market sort of follows behind the economy, but is used as a referance in the present economy. Is that a good way (if even valid) to differentiate the two? What are some ways the difference between the two can be summerized?

 

[Jonny_trigonometry]

I apologize. Sometimes I can't see how rediculous my claims are. I went and made all sorts of assumptions and I freaked out about false evidance, and ended up making the wrong conclusions. I was set on the conclusions, and basically I was in a bad mood.

"Hopefully this whole mess above our heads will go away if we don't let these thoughts bother us." - Me

this says it all, I was even assuming that other people than I also feel the same way. It's prolly just me that is freaking out, and nobody else... at least for a claim like the above. Once again, I'm sorry.

 

[russ_watters]

yes, there is a big difference between the stock market and the economy. The stock market sort of follows behind the economy, but is used as a referance in the present economy. Is that a good way (if even valid) to differentiate the two? What are some ways the difference between the two can be summerized?

The stock market is both a reflection of existing conditions and a prediction of future conditions. Take the internet bubble, for example - the stock market went up and up and up in response to erroneous predictions about the internet economy. This bubble was so big that it did create motion in the economy, where normally the stock market has a small, effect on actual economic growth. Once it was realized that the tech companies that were on the market had little real value - and, more importantly, never would - people started pulling out and the market plummeted. Ordinarily, the market's fluctuations, themselves, don't create much economic growth.

In short, the stock market both reflects the conditions now and predicts them 6+ months from now.

Depending on the specific point of the question, I wouldn't usually try to correllate the stock market and, say, the GDP, however, it may be possible to base an investment strategy on things like the baby boom. I've had some success predicting the effects of big news from tech companies. I only wish I had seen the iPod coming (in hindsight, I really should have - I already owned an mp3 cd player)...

 

[russ_watters]

I apologize. Sometimes I can't see how rediculous my claims are.

Don't apologize - its an interesting line of reasoning and a good thought. I don't quite agree, but it has potential - ie, for an investment strategy.

 

[BobG]

Suppose you're a high-powered stock trader in 1946, and you know that there is a lot of 1-2 year olds out there. Would you invest in baby clothes, baby toys, and baby food, or would you invest in cars and airplanes? About 5 years later, would you still invest in baby food, toys, and clothes, or would you start selling your stock after it rose? What would you invest in then? school supplies right (since most 5-7 year olds start going to school then)? what about another 5 years down the line? You'd probably still keep some of the investements in school supplies, but you'd sell the stock in lunchboxes and thermoses and maybe pick up stock in school food service supply companies or something. You'd sell stock in kids clothes and buy stock in teenager clothes, and maybe older kids toys like bikes and baseball gloves. Another 5 years down the line and the baby boomers are about 15-17, now would you invest in baby clothes, toys, and food this time, or would you invest in cars? Of course cars, because the boomers are all learning to drive. What else would you invest in at this point? small companies that hire a bunch of cheap labor like grocery stores, drug stores, and hardware stores? why not, they would do well with all the competing boomers... and so on and so forth.

So, perhaps the economy has done so well since then because there has always been the baby boomer referance to tailor investments. The average age of the population will slowly even out from a sharp distribution to a more shallow distribution curve over time as the baby boom echoes, as each echo is less sharp and less intense. After a while, the population loses the quality of predictable booms of certain age groups and the economy becomes less pridictable, and therefore the stock market loses it's momentum. Hence our current position... What will it take to save our economy from falling? What would those in power (who can create another baby boom if they want to) do to gain more control over the economy again?

I think the most common advice for the new investor trying to figure out what he should invest in is for him to look around his house. The popular brands he buys are the stocks that do well.

Looking at what a huge bulge in population will need to determine what stocks are likely to do well in the future is just common sense. I'd invest in Depends if I were you. :rofl: (actually, it is a good product to invest in, even if kind of funny)

The last couple of quoted lines are a little overblown. What people buy drives stock prices most. As long as the baby boom generation has some product or service they need, the overall economy won't fail. I imagine it will lose momentum (slower growth) as the baby boomers start cashing in their retirement investments, but keep in mind that they're cashing their investments so they can spend that money instead.