“I don’t set trends. I just find out what they are and exploit them.” – Dick Clark
January is a time to look ahead and make predictions.
As I look ahead, I can see one major trend. And it’s one that will have repercussions for the economy as a whole. That trend involves baby boomers. Boomers have been a major factor in consumer spending, saving, and investing for 50 years. So it’s likely they will continue to be. In fact, they will probably affect the economy for the rest of their lives – for the next 20 to 25 years.
If you accept this premise, the following 22 predictions may make sense to you:
1. Baby boomers will get poorer this year. They lost half of their retirement nest egg when the tech bubble exploded. And they have been losing much of the rest of it as real estate prices come down. This will continue in 2008. Credit will be harder to come by. Banks will get tougher with loans. And the many businesses that took stock in the real estate boom will continue to implode.
2. Scared by their shrinking wealth, some boomers will make one final, frenzied attempt to “get back” the wealth they never really had. They’ll scrape together their last dollars. They’ll borrow money. And they’ll use it to make high-risk, leveraged financial investments in such things as currencies and commodities. The greediest sectors of the financial services industry will benefit, temporarily, from this short-term trend. Later, they will suffer from it as their customers disappear.
3. As 2008 ends, boomers’ speculative investments will fail to rescue them. So they will grudgingly accept the fact that they will never be as wealthy as they wanted to be. They will feel defeated, and they won’t have the energy to start anew. As a result, they will drastically decrease their discretionary spending.
4. Following the boomers’ lead, consumer spending in general will slow down. The Fed will do what it can, but it won’t be enough. Lower credit rates won’t be enough to stimulate the economy. Growth will slow. Businesses will continue to go bankrupt at record rates.
5. With decreasing revenues on one side and increasing fixed costs (related to real estate) on the other, retail will be especially hard hit. Many, if not most, medium-sized retail businesses that exist today will be defunct within 10 years.
6. On the bright side, Internet spending will continue to grow. But the growth will be much slower than in the past. Lots of opportunities will allow people to make money by marketing products and services on the Internet. But many of those who are in business today will go bankrupt as the market becomes more competitive.
7. Estate homes and multimillion-dollar condominiums will tumble in value, even below current prices. Many will be left vacant. It will take at least seven years for many of the properties that have been built in the past two years to be occupied. Investors in these properties will be wiped out.
8. More than 80 percent of the existing real estate development industry will go bankrupt.
9. Following real estate development will be the larger part of the banking and financial services industry. Thousands of young investment bankers and hedge fund managers will be out of work. This could happen as early as the middle of next year.
10. As the U.S. economy slides into a protracted recession, baby boomers will recognize that they are poorer than their parents were when their parents were in their early sixties. Without the appreciation of a house to cash in on, they will give up their long-held dreams of retiring comfortably at 65.
11. Luxury will be uncool. Understated elegance will be in.
12. The campaign against conspicuous consumption will accelerate. Twelve-cylinder cars will be ridiculed and possibly outlawed entirely.
13. Hippie values will return. Peace and love and blue jeans will prevail… simply because baby boomers won’t be able to afford to indulge themselves materialistically as they have been doing for 40 years.
14. Technology and the baby boomers’ shrinking wealth will favor products that are simple and small.
15. The wristwatch will begin a 20-year disappearing act.
16. Yoga, meditation, and Pilates will continue to increase in popularity. Aerobics, weight training, and kickboxing will diminish.
17. Yachts, luxury automobiles, and Learjets will stand in warehouses, unused.
18. Migration to the Sun Belt will slow because of hurricanes and high prices. Local Sun Belt municipalities will be forced to lower taxes. Services will decline.
19. Technical jobs will continue to be outsourced to India and Latin America. And in the U.S., boomers will start to agree to work phones and read X-rays for minimum wage.
20. The information-publishing industry – particularly the specialized information-publishing industry – will continue to grow, outpacing the general economy. Entrepreneurs who understand the difference between information, advice, and opinion will make fortunes.
21. Direct marketing will continue to grow as general advertising declines. Businesses that are unskilled at direct marketing will have a tough time staying competitive. Many will fail.
22. Boomers will “decide” to continue working during their retirement years. But many of them – lacking the skills to contribute to the Internet, information-publishing, or direct-marketing industries – will go unemployed.
Those are my predictions for 2008. But what good are such predictions? Can they make you any money?
I don’t know. I do know a few things about investing in trends, though. Lessons I’ve learned from a lifetime of starting all sorts of businesses. For example:
- You can make the biggest money on a new trend that emerges quickly and grows strongly… if you get in early.
- It’s difficult to predict new trends with precision. You can sometimes see that a certain change is inevitable, but it is often difficult to know when it will happen. Usually, it happens later than you expect.
- For any given day or week or month, chances are good – some studies say 70 percent – that things will remain the same the following day or week or month. That’s why it doesn’t usually pay to play trends in the stock market. Unless, that is, you know what you’re doing or are getting good advice from someone who does.
- The sensible way to invest in trends is to buy into good businesses that provide neutral or positive cash flow. That gives you a Plan B. You can sit out short-term fluctuations while you wait for the long-term trend to take hold.
- Sometimes even medium- and shorter-term trends are more obvious. This is especially true on the downside. Such is the case with the baby boomer driven economy today.
Emmett, a friend and business partner in real estate development, doesn’t like it when I speak negatively about the future of the economy, and real estate in particular. He feels like I am being disloyal to the businesses he is running. He would rather have me encourage him to go full steam ahead. He seems to feel that if I were more positive, things would get better.
“I hope you’re right,” I tell him. “But no amount of hoping is going to make the U.S. debt go away. And no amount of positive thinking will get people to buy property if they don’t have any money and can’t get credit.”
“Anything you can conceive, you can achieve,” he tells me.
“So long as you achieve it before you go broke,” I reply.
Hope for the best. But make your business plans based on a realistic assessment of current trends. Hoping against hope works in fairy tales. But in the real-life world of business, it’s better to put aside the rose-colored glasses.
If I am right about the future for baby boomers, it won’t be the end of the financial world. People who are smart enough to put their time and money into developing industries (such as direct-marketing, information-publishing, and Internet-related businesses) will do well. Others, like my friend Emmett who lives in Never-Never Land, will get poorer.[Ed. Note: One of the best ways to find financial freedom is to start your own business. In his brand-new book, Ready, Fire, Aim: Zero to $100 Million in No Time Flat, Michael Masterson shows how veteran and rookie entrepreneurs alike can take their businesses to the next level. You’ll learn how to identify and solve the problems that crop up during each stage of a company’s growth… and how to take advantage of profit opportunities along the way. Click here to order your copy now.] [Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]