Each of us knows a baby-boomer.

Baby-boomers have developed the structure of our current economic system, and they hold the keys to its unraveling.

Baby boomers are the owners of over $14 Trillion of assets held in retirement funds via pensions, IRA’s and social security. To put this in perspective, the total amount of money in the global stock market currently stands at roughly $70 Trillion. In other words, baby boomers control the fate of about 20% of the current stock market’s value.

This is a substantial amount of capital in the hands of an aging group of folks. Folks who are nearing retirement and will begin selling these assets in order to raise cash for living expenses.

Of course, this is only natural. We are told from a very young age to maximize our 401(k) contributions, to save as much as we can for retirement, to put these savings into retirement funds to gain the tax benefits, and to let the wonder of compound interest works it wonders.

The thing to keep in mind is that for generations born after the baby boomers:

  • there are fewer well-paying and full-time jobs
  • living expenses have skyrocketed relative to income
  • debts are at all-time highs

Those being facts, logic tells us that younger generations are not saving for retirement because they are unable to.

And for anyone who claims that the above are not facts, just ask yourself whether it is now feasible for someone working retail to be able to afford a home? My own family members were capable of working retail throughout the 1970s-1990s and affording homes in California. Those days have long gone.

The average baby boomer will have saved roughly $225,000 for her or his retirement, assuming they started saving when they were 30 and begin withdrawing funds at the retirement age of 70. That is assuming a lot, but let’s give CNBC the benefit of the doubt.

The issue is that younger generations are not taking to the markets like their predecessors for the reasons I mentioned above. Throw into the mix the fact that baby boomers are nearing the tipping point where larger and larger droves of retirees will begin liquidating their positions to pay for living into retirement, and we may have a catalyst on our hands.

The most simplistic way to approach markets is to pay attention to liquidity, to the flow of capital, and the larger the flow of capital, the larger its influence.

Whenever the marginal pool of buyers is larger than the marginal pool of sellers, odds are we can expect the price of a fixed-supply asset to increase.

However, what we are looking at with the fixed-income and retirement capital concentrated equity markets is the complete opposite.

It seems we are on the brink of a secular shift in the markets whereby baby boomers reaching their retirement age begin liquidating positions that they have been adding to for the past 30+ years.

Simultaneously, the marginal pool of buyers entering the marketplace is diminishing as younger generations do not have the proper resources to be investing in the markets in any noteworthy capacity.

I argue that even those few who do have the proper resources are bootstrapped because they are nearing the age where they want to purchase a home and begin settling down with a family. With real estate prices at all-time highs, that provides a major barrier.

Most of the baby boomer’s $14 Trillion are concentrated in ETFs and other passive investment vehicles.

This means that not only is this $14 Trillion all due to be liquidated within the same time frame, but it is also going to be liquidated out of the same stocks, bonds, and mutual funds.

  • What happens when this baby-boomer retirement fueled liquidation phase coincides with a market correction, or worse, a recession?
  • What happens when the baby boomers realize what I have laid out for you in this article? Namely, that they are all invested in the same vehicles and looking to sell at the same time.
  • What happens when they flood the market with their assets and there are not enough buyers to take the other side of the trade?

It’s simple. Prices decline. Position accordingly.

I will never pretend to have all the answers, but this trend is another reason I recommend hedging, always maintaining a considerable allocation to liquid cash, speculating in cryptocurrencies, having insurance in gold and silver, looking for asymmetrical plays where you can risk small amounts of capital for larger than life gains, and reading, reading, and then reading some more to educate yourself on these matters.

None of us want to be the person trying to learn about what happened after it is already too late to do anything about it. Nobody wants to be the guy going all in on equities and bonds in 2007 only to find that 50% of his net worth has been wiped out a year later.

Most importantly, nobody wants to be put in the situation where they do not understand what is happening and must resort to fear-selling, asking for help out of desperation, and ultimately, running the risk of losing financial autonomy. At the end of it all, financial autonomy is the goal here.

“Demographics is destiny.” — Arthur Kemp

DISCLAIMER : This content is for informational, educational and research purposes only. This post is not to be taken as personalized investment advice.

Practice what you preach.