Federal Reserve flow of funds accounts for Q1 2006 show the degree to which equity investments have fallen out of favor with individual investors.

Flow table F100 (Households) reports annual rates of net direct sales of equities by individuals of $866.5 billion, an all-time high.

This selling is interpreted as reflecting executives exercising stock options in a massive transfer of corporate wealth to favored insiders through buybacks.

On the other hand, net purchases of equities by individuals via mutual funds — for many years a pillar of the stock market — was only $205.1 billion in Q1 2006 (annual rate).

This means that net disinvestment in equities by individuals was $670.9 billion (annual rate) in Q1 2006 — a record!

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The Milken Institute debate that was highlighted in an earlier article, Common Stock Legend Disavowed: Professor Siegel’s Epiphany, brought into focus two opposing views regarding the possible negative impact on stock prices to be caused by the retirement of the Baby Boomer generation.

Michael Milken, the Chairman of the Institute, took an optimistic stance, suggesting that the problem would probably resolve itself through improvements in technology and productivity enhancements.

Linking economic stability and growth to enhanced productivity and new technology is a popular theme among economists, including ex-Federal Reserve Chairman Alan Greenspan.

Productivity and Technology Can’t Save the Baby Boomers

As described in the essay, “Profits and Population“, American economic growth over the last fifty years has had more to do with the expansion of the number of people working in the money economy than with advances in technology and productivity.

The initial impact of productivity improvements and new technology is to put people out of work.

Unless government policy and societal customs encourage education, savings and investment, and entrepreneurial activity, higher paying new jobs will not be created fast enough to employ workers displaced by productivity enhancement and new invention.

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On April 26, 2020 at the Milken Institute in Los Angeles, California, at the Milken Institute Global Conference for 2006, the topic “Baby Boom — Baby Bomb?” was debated by Michael Milken, Chairman of the Institute, and Professor Jeremy Siegel, of the Wharton School, University of Pennsylvania. The debate was moderated by Paul Gigot of the Wall Street Journal.

This debate was of such significance as to be featured in BusinessWeek on June 5, 2020, in the article, “When Boomers Cash Out: A buy-and-hold legend sees tough times ahead.”

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