Dec

6

Retiring boomers (as well as non-retiring boomers) may one day be interested in selling stocks and consuming the proceeds. Buying power depends both on market price and current inflation. The attached is monthly closes of the DJIA (1928-oct2010), adjusted by monthly CPI (BLS data: "Consumer Price Index - All Urban Consumers" 19670).

Besides the lost decades of the great depression, there were other major moves in the CPI adjusted DOW. Over the low-inflation rising market of 1948-1965 (point "1" - "2"), there was an inflation-adjusted gain from 2.45 to 10: a four-fold increase in buying power. The flat/choppy market which followed (1965-1982, point "2" - "3") occurred during periods of high inflation, dragging the buying power of the DOW down from 10 to 2.9: a 3.4X reduction.

The biggest move occurred during the low inflation bull market of 1982-2000: DOW buying power rose from 2.9 to 22.8 - an almost 8-fold gain in buying power (and the reason Jeremy Siegel got famous).

Currently the CPI DOW is about 17: those holding since 2000 have seen their buying power drop about 25%.

Preservation of stock buying power over the next 20 years could entail a flat market with no inflation or a rising market with low inflation. A flat or down market with significant inflation, while possibly benefiting boomer's children (who could buy discounted stocks with inflated earnings), is not something boomers themselves want to entertain.


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