An Employment Spiral Upward?
This year (2011), the oldest Baby Boomers (those 79 Million people born between 1946 and 1964 (http://geography.about.com/od/populationgeography/a/babyboom.htm) turn 65.
Recently, the unemployment rate dropped to 9.0% with only 36k new jobs created and people were asking "Why?!?". I have an answer and it is concerning, but in a good way.
I think the recent upturn in the Stock Market was the beginning of a positive spiral that may impact us for years to come. The cycle looks something like this:
1) The stock Market goes up.
2) More Baby-Boomers can now afford to retire, and drop out of the workforce.
3) This causes unemployment rates to drop significantly!
4) High employment rates cause the stock market to go up (and back to #1).
We could see a return to "Irrational exuberance", but I hope we don't. What we MAY well see, however, is P/E's returning to historic, if not above-historic levels - so we might see P/E ratios in the 20-25 range become more common (as I write this, GE's forward P/E is in the 12's).
My advice (it is free, but you get what you pay for) . . . Watch for "panic buying" as opportunities to sell covered calls, and buy the dips with your covered call proceeds.
I think we see Dow 14,000 again by the end of 2011. That can be bad news - conservatives will face an uphill battle trying to convince Americans that Socialism is bad, especially with low unemployment rates and a high stock market. But it IS. If they win that battle for the hearts and souls of men, the upsurge will last longer than if they lose and our Socialism experiment gets a 4-year extension.
It will be easy to tell if I am right - ask your older working friends - those 50-something or 60-something Baby Boomers- if they are thinking about retiring in the next few years and whether the stock market runup will play a part in that decision. Then watch unemployment rates drop inexplicably, while perhaps few if any net jobs are added to U.S. Payrolls.
And party like it's 1999 (because it will be very similar, IMO)!!!!