Corporate America Might Just Save the Baby Boomers

They pioneered rallying against "the man" and may have made "Corporate America" a four-letter word, but the Baby Boomers may yet come to appreciate Corporate America just yet in that it may just save their asses when it comes to retirement.

During the Dotcom Mania days and the successive crash, I was somewhat concerned that with 401k's, IRA's and the bevy of other retirement programs out there that these programs would incentive people (namely the Baby Boomer generation) to flood the stock market with retirement dollars, artificially driving up prices only to crash when the Baby Boomers retire and start pulling their money from the stock market. I noted this as the S&P 500's P/E ratio has never been below it's historical average since 1928 of 15 ever since the Baby Boomers entered their prime earning years in the late 80's. The S&P 500 P/E ratio didn't even drop below its average after the stock market crash suggesting there was a lot of excess cash floating around.


However, what amazes me is that even with this excess cash in the market AND the recent bull market, I would have sworn when I updated my charts that the S&P 500 P/E ratio would have skyrocketed again as America went back to mindlessly flooding the stock market with their retirement dollars. But no such thing has happened. Actually, the S&P 500's P/E ratio suggests the markets are accurately valued, borderline sane with the P/E ratio hovering around 16, just a smidge over the historical average.

With a bull market driving prices sky high, mathematically the only culprit that could be keeping the P/E ratio down is profits, and sure enough that's what it is.

Corporate profits in America have reached an all time high as a percent of GDP of just over 10%. This not only provides merit to the recent bull market, giving it some underlying value, but also suggests that a "Baby Boomer Crash" may not ensue as the Baby Boomers start to retire and switch their investments from equities to bonds. Corporate America, evil and vile as it may be, might just be able to keep the profits up making the stock market a viable and wise long term investment and making sure millions have the money in their retirement accounts.

Of course, I'd be curious to see what would happen to corporate profits when we enter a recession triggered by a housing bubble. But that certain isn't a possibility now is it?