The Behrend Beacon I 6
Weekly stock report: Baby Boomers need to
By Piyush Bhardwaj
contributing columnist
pub I 160 psu edu
The United States economy performs
in a strange yet somewhat predictable
pattern. We all witnessed the 'tech
bubble burst' in the 1990 s to the begin-
ning of the 21st Century. Investors,
companies and Americans in general
lost substantial value in their portfolios
during the "tech bubble burst."
Recently, in the last four years, the real
estate industry is experiencing a boom.
The property values are skyrocketing,
the manufacturing of homes is on a ris
ing tide and investors are making for
tunes "flipping real estate." As the
Feds are now raising the interest rates
consistently, this real estate boom is
going to come to a halt in near future.
The United States economy is believed
to be efficient, i.e., the money always
stays in the economy, merely rolling
from one bull industry to the other. The
big question that arises for economists
and Americans is where is the next
booming industry?
Lately, I have been following the
Financial Services and Securities
Brokerage industry closely for the last
six months. Moreover, I have been
monitoring the top six companies in the
above industries intimately. I have
noted that these companies have
enjoyed a revenue boost in the last
quarter and arc posting higher earnings
than predicted by financial analysts.
Merrill Lynch (MER), one of the
biggest companies in the industry had
the best second quarter in its history, as
earnings rose nine percent. Legg
Mason (LM) closed its fiscal year on a
solid note as share earnings for the year
jumped 34 percent and a 24 percent rise
in revenues. Lehman Brothers (LEH)
company's stock price is breaking its
yearly high right now. The industry as
a whole is peaking as we descend in
this year of hurricanes, high oil prices
and increasing trade deficit.
„Atter researching thoroughly, I have
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concluded the following factors
responsible for this boom: Baby
Boomers Every seven seconds anoth
er boomer turns 50. There were
approximately 78 million Baby
Boomers born between 1946-1964.
The numbers increase 56 percent every
Stook Price
(M*jor ftruracial
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year, and will continue to rise until
2011. As the largest consumer spend
ing group - $9OO billion a year,
Boomers will control the vast majority
of the nation's wealth within the next
20 years. These Baby Boomers have
$4.4 trillion in assets or about a quarter
of all financial assets in the country,
according to Stanford Research
Institute. Moreover, a survey conduct
ed by Oppenheimer Funds, Inc. (one of
nation's largest and most respected
investment management companies
The New apartments will also
with $l7O billion under management)
among Americans ages 45 to 75 with
investments of at least $300,000 dis
covered that eight in every ten surveyed
lacks the basic knowledge of invest
ment techniques. This lack of knowl
edge among Boomers could lead to a
retirement crisis
Therefore, most financial service
companies are targeting these Boomers
and allocating majority of their
resources to attract business from them.
Further, research concluded that those
respondents with a financial advisor are
more likely to have a written plan for
retirement, feel safe and confident
about retirement and meet their income
goals for retirement.
"When it comes to Baby Boomers
and financial planning, there is a strik-
FOR FALL 2006
ing contrast between perception and
reality," said Murphy, a leading econo
mist from Oppenheimer Funds. "The
overriding lesson is clear, the earlier
you start planning, the, less likely it is
that you will have to compromise your
retirement dreams and plans."
The effect of this increasing demand
in wealth management services was
experienced in the quarterly filing of
some companies. Goldman Sachs (GS)
reported an increase of four percent in
revenues from their asset management
sector. Also, small companies like
Lord Abbot and Gunn Allen financial
are increasing assets under manage
ment by 20-30 percent. Merrill Lynch,
Vanguard, Charles Schwab, Fidelity.
etc., are expanding its retirement pro
grams and including more services only
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Friday, November 4, 2005
F ri ll
plan early
for these Baby Boomers in particular.
Recently, American Express launched
Ameriprise Financial, a spin-off of the
parent company exclusively targeting
the growing market for financial
advice.
Increase in Mergers & Acquisitions
(Domestic & Foreign) - The term merg-
ers and acquisitions (M&A) refers to
the takeover of a company by another
company or two companies combining
their resources together. M&A activity
picked up significantly as market
recovered from the tragic disaster of
September 11, 2001.
In 2004, the number of deals
increased to 823 from 790 in 2001 rep
resenting an increase of about four per
cent. Deal value also increased 27.4 bil
lion in 2004, to 177.4 billion, from
150.1 billion in 2003. The investment
banks carry out these M&A activities
for a fee. Surprisingly, the big three
[Goldman Sachs (GS). Morgan Stanley
(MWD) and Merrill Lynch (MER)]
dominate the market share ranging
from 32 - 39 percent. That is, more rev
enues for these financial companies.
Although domestic M&A activity is
rising consistently, foreign activity is
rising at an alarming rate. For example,
in 2000, M&A activity in Japan jumped
eight-fold and in the rest of Asia by 59
percent. Recently, the volume of deals
in Latin America rose more than 360
percent.
Europe is enjoying an increase in
business activities, but more important
ly the increased number of mergers and
acquisitions is just another contributing
factor to increasing revenues for these
financial entities. "The Euro Factor," is
the primary reason for increasing M&A
activity throughout Europe. The Euro
has simplified M&A by creating a rela
tively smooth trading zone among euro
nations. While researching the M&A
activity in Europe, I was particularly
amazed by the growth in the Polish.
Hungarian and the Czech Republic
market where volumes increased by 59,
37 and 15 percent respectively.