The baby boomer generation has fueled the use of credit for the last 40 years and that is now changing. The prime means of increasing wealth was through the use of leverage: borrow as much as possible to buy the biggest house because it will increase in value. The problem was the “end game”. What do you do with your big asset? Sell it and buy a smaller house and bank the profit for a retirement nest egg? It seemed like a good plan at the time.
The Law of Familiarity
How many of us want to live in Hawaii? The problem is that once you have spent a substantial amount of time in a locale, it becomes familiar and much less exotic. Each sunset is less of a surprise and no longer tweaks the senses. The same is true when buying a larger house. Once the newness has worn off, it is simply a larger asset to maintain. Less is now more.
Looking Inward
Once all of the big boy toys have lost their appeal, baby boomers will look inward and reassess their priorities. After all, we can’t take our toys with us when we die. I believe this collapse of credit will bring forth an awakening of mankind. Our priorities will shift from material to spiritual. People will become important again and relationships will once again be a priority. This will usher in new revelation rather than reviving old revelation and our understanding will be expanded after the idols have been disposed of.
The Fallacy of Assumptions
Over the last five decades, financial assumptions of asset appreciation have served many Americans well. That is about to change. Housing may not be the investment it once was. Granted, everyone has to live somewhere but your house may not hold your retirement funds you were counting on. Being out of debt with a house that is paid for contains an inherent return on investment (ROI). You are “making money” by simply not paying rent or a mortgage payment thus you need less money to live on and also will have less tax burden to support. Those that see the fallacy of more and bigger “things” will position themselves well in the coming economic change.
The Expense Annuity
Many boomers will focus on recurring monthly expenses and energy consumption will be at the top of the list. Your monthly utility bills are like financial “black holes”. Once that money is gone, it never returns. Minimizing monthly recurring expenses will move to the forefront of boomers’ minds. Energy efficient windows, insulation, and other measures will provide entrepreneurs with a notable growth opportunity.
Gold and Silver
The gold price is flirting with a new all time high. As the uncertainty continues, more investors will put gold on their radar. As of late, silver has been leading the way in price appreciation. Related stocks stand to gain from this price strength. Physical assets are replacing paper assets as the best store of value.
Inflation or Deflation?
How about both! It depends on your perspective. Price deflation of “toys” and McMansions is likely to occur as the attitude and focus of the boomers change and the velocity of money is reduced. However if the Fed persists in printing more money, inflation will force up prices in food and other necessities of life. Food, shelter, and clothing are needed no matter what the environment.
The credit “traps” of the past have been uncovered. Tax credits to increase our borrowing are no longer the incentives they once were. People are tired of being servants to the lenders. This servitude has caused many to grow weary. This fundamental “megatrend” change will create a brave new world.
What a journey!