Pension funds poised to become ‘net sellers of securities’: Keating

Former Prime Minister Paul Keating has predicted an end to the “current 25-year-old equities bull run” in 2008-09 because pension funds will become “net sellers of securities” as the baby boomer demographic leaves the workforce.

Speaking as guest of honour at the fourth Annual van Eyk Conference in Sydney yesterday, Keating said there would be “massive redemptions by pension funds from the stock exchange as the baby boomers retire”.

“I think we are now at the end of a 25-year-old bull run, and the tipping point will be in 2008-09 as we see my generation leave the workforce, and with a paucity of the under-29 demographic available to replace them.”

Keating said the end to the bull run would also be heralded by an end to the current business cycle, which “began in 2003 in the US”, as well as a rise in structural inflation.

“Bearing in mind that (these factors) are impacting at the same time, it’s very hard to see how you are going to be able top the All Ordinaries or Dow Jones (performances) that we are seeing today.”

He predicted the “current business cycle, which is just an investment cycle, will end by 2009 as a result of an over-investment in capacity”, after reaching a “cyclical high” in 2007.

“If the business cycle turns in 2009 there is a reasonable chance the stock market will turn in 2008, as the stock market always picks us (the business cycle) by about a year.”

There’s also a “reasonable chance” of a rise in structural inflation by 2008-09, he said, driven primarily by declining productivity and rising unit labour costs.

“In turn, this will result in a rise in bond yields, which will pull bond prices down, and when bond prices come down stocks will come down with them.”