During the first few years of the bull market recovery following the financial crisis some people used to talk about the “Bernanke Put”, or describe the Fed as the “Plunge Protection Team” to explain why the stock market would immediately bounce back after sell-offs.
This of course was a bit conspiracy talk, in that I doubt the Fed was actually out purchasing stock or index futures in the open market. But it did have a kernel of truth in that the zero interest rate policy (ZIRP) did leave many investors in the there is no alternative (TINA) to stocks, especially older people in desperate need of income.
But I recently came across an old article (from May 2015) offering a better explanation of why every dip gets bought, just like this week as the market has quickly erased the recent decline, continuing to power up for 8 years now; call it the Boomer Put.
Essentially as baby boomers start heading into retirement, which could last 20-30 years or more thanks to longer lifespans, they have been forced to keep investing to fund the upcoming liabilities.
Here is an excerpt…
I read an interesting interview with Robert Shiller here.
What is interesting is this: (1) Shiller finally acknowledges that valuations of all financial assets are related; and (2) Shiller’s supposed cause for the overvaluation is that “people are not confident in their future.” He also makes the comment that this will end badly.
I have a different take.
I will try to illustrate through a simple example.
-Assume you are nearing retirement and trying to calculate how much you need to save for your golden years.
-Assume also that due to advances in medical technology, you really have no idea what your lifespan will be. It could be 5, 10, or 50 years.
-Assume you need $50,000 year for living expenses and that there is no inflation (just to make things simple).
How much will you need?
— The Option Specialist