Thursday Thoughts – Fed Speak Moves the Markets

All are scheduled to bat today in the Stock Market's Home Run Derby.  As I noted on Monday (we like to be prepared at PSW), it's hawk, dove, hawk, dove, dove and Plosser already had his swings this morning, calling for a "wind down" of the Fed's Balance Sheet (which is updated after the markets close today).  While inflation may be tame for the time being, Plosser says an acceleration in the velocity of money could change the calculus quickly and leave monetary policy struggling to keep pace.  That is, of course, exactly what I said on Sunday morning at our Atlantic City Investor Conference, just a few weeks ago. 

While I don't remember Plosser in the audience, I have to compliment the guy on his incisive views, if not his conclusions.  Unlike Plosser, I don't think the runaway inflation is undesirable – more like it's inevitable as we not only NEED to inflate our way out of debt but we need to inflate our homeowners into a reasonable retirement and, in order to do that, we need China-like housing inflation of over 100% in 5 years in order to give 110M US homeowners some spending money.  

The average American has $40,000 saved for retirement and that is NOT net of debts.  41% of our Labor Force (57M workers) are now 55 or older and, technically, 10 years or less from retirement.  If we assume an even spread, then close to 6M people a year are turning 65 and begin qualifying for Social Security and, CLEARLY, they are NOT being replaced at a rate of 500,000 a month by younger workers.  

This should not be news to anyone – we've been hearing about "boomers" since they were born in the 50s but now the bulk of the boom, people born between 1954 and 1964 are moving into retirement and the chart below, from the last census report, shows you how dramatic this wave is (and the circled group from this chart is already 49 to 69):

These trends aren't hard to play from a market standpoint.  Back in my 2010 Market Outlook (12/27/09) we discussed this exact trend as the easiest macro to bet on for the decade and we discussed IHI at $53 (now $80 – up 51%), ISRG at $300 (now $500, up 66%), MDT at $44…