Conspiracy theory or legitimate explanation?

CreditCardChris

I watched a video by a former Goldman Sachs fund manager who basically says this. 

The millennial generation are stuck with all time record valuation equity markets, 0% interest rates to make money from bonds / saving accounts, property at all time highs so there's just nowhere for this generation to put their money... 

And his explanation is basically all the boomers in government, which the majority of the government is, have their pensions in the stock market and they don't want them (and themselves) to go broke so they're doing literally everything in their power to prop up the stock market and not allowing the market to go through its nature cycle. On top of that the governments have so much debt on their hands they can't possible repay it so if the economy crashes they're going to have insolvency issues up the wazoo. This will lead to mass unemployment and of course it will be the millennials who lose their jobs because all the boomers are retired.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

What craziness is this we're living in? Don't even get me started on property because it's the same !!!!!!. I know there are many boomers on this forum who will disagree with this and come up with some silly excuse like "there are more opportunities now than in 1950" but the bottom line is the amount of money we're being paid has much lower buying power than previous generations. How the !!!!!! are we meant to save for retirement when the cost of retirement is 10.7 times more expensive!

wmb194

Conspiracy. If 1964 is the cut-off, Boris only makes it into the last year of being termed a boomer. What was the P/E multiple on the S&P500 in 1950? Are you comparing like-with-like? The multiples people are willing to pay will vary depending on the outlook for the future. When you say, "millennials" who are you really referring to? The oldest millennial is almost forty years old and many/most will be on the housing ladder, have good jobs and will have seen their investments do very well in the last ten years. If governments are truing to do anything it's to prop up the economy and this is good for everyone. How do you save for retirement? The way people always have, the best they can.

CreditCardChris

wmb194 said:

Conspiracy. If 1964 is the cut-off, Boris only makes it into the last year of being termed a boomer. What was the P/E multiple on the S&P500 in 1950? Are you comparing like-with-like? The multiples people are willing to pay will vary depending on the outlook for the future. When you say, "millennials" who are you really referring to? The oldest millennial is almost forty years old and many/most will be on the housing ladder, have good jobs and will have seen their investments do very well in the last ten years. If governments are truing to do anything it's to prop up the economy and this is good for everyone. How do you save for retirement? The way people always have, the best they can.

When I say millennials I'm referring to people born after 1990.
But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income. Then as time goes on the cost of buying your retirement grows ever more expensive as our income has less and less buying power.

masonic

The US stockmarket has grown faster than US wages. Is that supposed to be surprising?
So 1 unit is 10.7 times more expensive. It's also 10.7 times more valuable. I guess you think it's a lot better to have 100 x 10p coins in your wallet rather than 10 x £1 coins, or, perish the thought, one ten pound note.
What is concerning is that housing is too expensive, but many benefit from that, not just those in their late 50s and older.
The cost of retirement is not 10.7 times more expensive, unless you are spending 160 times more money in retirement than someone retiring in 1950.

masonic

CreditCardChris said:

When I say millennials I'm referring to people born after 1990.

People born from the mid-1990s onward are known as Generation Z. Millennials are typically the children of Boomers and reached adulthood in the first years of the new millennium, hence the name.

CreditCardChris

masonic said:

The US stockmarket has grown faster than US wages. Is that supposed to be surprising?
So 1 unit is 10.7 times more expensive. It's also 10.7 times more valuable. I guess you think it's a lot better to have 100 x 10p coins in your wallet rather than 10 x £1 coins, or, perish the thought, one ten pound note.
What is concerning is that housing is too expensive, but many benefit from that, not just those in their late 50s and older.
The cost of retirement is not 10.7 times more expensive, unless you are spending 160 times more money in retirement than someone retiring in 1950.

What are you talking about? 

In 1950 an average salary bought you 183 units, today an average salary buys you only 17 units. Therefore our money buys LESS. What don't you understand?

eskbanker

CreditCardChris said:

Conspiracy theory or legitimate explanation?

I think you'll find that there's a third option, involving bovine excrement....

masonic

CreditCardChris said:

masonic said:

The US stockmarket has grown faster than US wages. Is that supposed to be surprising?
So 1 unit is 10.7 times more expensive. It's also 10.7 times more valuable. I guess you think it's a lot better to have 100 x 10p coins in your wallet rather than 10 x £1 coins, or, perish the thought, one ten pound note.
What is concerning is that housing is too expensive, but many benefit from that, not just those in their late 50s and older.
The cost of retirement is not 10.7 times more expensive, unless you are spending 160 times more money in retirement than someone retiring in 1950.

What are you talking about? 

In 1950 an average salary bought you 183 units, today an average salary buys you only 17 units. Therefore our money buys LESS. What don't you understand?

183 x $18 = $3294

17 x $2836 = $48212

$100 in 1950 had the purchasing power of $1071 in 2020

So 17 units in the S&P500 would be worth $4501 in 1950 dollars. Therefore 17 units in the S&P500 is worth more than 183 units were in 1950.

What don't you understand?

dunstonh

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

I know there are many boomers on this forum who will disagree with this and come up with some silly excuse like "there are more opportunities now than in 1950" but the bottom line is the amount of money we're being paid has much lower buying power than previous generations.

I'm not a boomer but I disagree with you.   This generation is better off than most previous generations.   They just spend their money in diferrent ways and choice is different. 

Food is too cheap (it should be more expensive but thats a whole new debate), cars are both cheaper and more expensive. Insurance is cheaper (believe it or not), domestic electrical goods are cheaper.  However, consumer electric goods range from cheaper to levels really seen in the past.   Dining out was rare, now it is frequent.   Things are so much different today and the priorities of individuals have changed significantly.

CreditCardChris

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Prism

CreditCardChris said:

dunstonh said:

But the way people have always saved for retirement has been in savings accounts, bonds or the stock market but savings and bonds are a no go with 0% interest rates and this leaves us with just the stock market, which is 10.7 times more expensive relative to income.

Most people do not use savings for retirement.   The typical spread is gilts, bonds and equities.  All three of which remain viable.  So, its not just equities.

In 1950 the average salary in the US was $3,300 and the S&P500 was trading at $18. Now the average salary is $48,672 and the S&P500 is trading at $2836. This means in 1950 your annual salary could buy you 183 units of the S&P but now your annual salary can buy you only 17 units, that means 1 unit is now 10.7 times more expensive relative to income!

That is not a way to compare.    Look at the size of the size of the companies and markets they transact in 1950 compared to today.   You cannot link it to salary as there is causal link.   There is broad link to company earnings though.

What you should look at is PE ratio.  Historically, it spends most of its time under 20.  The median is just under 15.  Two times in its history it got above 40.  The dot.com period and AFTER the credit crunch.  PE Ratio, like most stats, is not reliable by itself.   For example, if you did rely on PE Ratio alone, you would have the period after the credit crunch falls as being the worst time in history to invest. Whereas it was the best time.   The PE ratio was heading to 25 just prior to the recent falls.  Estimates have it back to around 20 at the moment.  Although with earnings expected to fall, the PE ratio is likely to increase (just as it did after the credit crunch).

Thank you. 
So if the P/E ratio is around 20 like it is now, does this mean the price of the S&P is healthy? This of course doesn't mean it can't go down but what I'm asking is if 20 is normal and 15 is the median then the S&P from a pure price perspective is actually pretty normal?

Whether or not the S&P is expensive based on P/E also has to factor in the alternatives - as in is it relatively expensive to other options like cash and bonds. P/E can be manipulated by share buy backs which reduces the number of shares and therefore increases earnings per share, which in turn reduces the P/E. Also something might have a high P/E when it has a high expected growth rate which is a good thing rather than a bad thing. You need to look way deeper at company fundamentals to make your decision than simply P/E - or not worry about it and buy an index.