In case you’re at a shortage of miserable news stories, here’s something else to worry about. According to a recent Federal Reserve paper, retiring baby boomers could sink the stock market over the coming decades.

Baby boomers are, of course, a large generation. And when that large group begins retiring en masse. they will liquidate assets. All that selling, the Fed reckons, will keep stock valuations low for the next two decades.

By a lot, too. We find that the. P/E ratio should decline from about 15 in 2010 to about 8.3 in 2025 before recovering to about 9 in 2030, the Fed writes.

That’s serious stuff. To state the obvious, if earnings double, yet the earnings multiple falls by half, stocks go nowhere.

The Fed’s analysis is based on taking the ratio of two groups, the middle- age (40- 49) and old- age (60- 69) cohorts, and comparing it to the P/E ratio of the S&P 500. Over time, it found a connection:

Source: Federal Reserve.

And concludes:

[B]etween 1981 and 2000, as baby boomers reached their peak working and saving ages, the M/O ratio increased from about 0.18 to about 0.74. During the same period, the P/E ratio tripled from about 8 to 24. In the 2000s, as the baby boom generation started aging and the baby bust generation started to reach prime working and saving ages, the M/O and P/E ratios both declined substantially.

Extrapolating that trend out over the next two decades, and factoring in projected changes in age demographics, is how the Fed forecasts the drop in P/E ratios.

Scary stuff. But should you buy it?

I think there are two reasons to be skeptical.

Before we get there, there’s an important point to make. There seems to be a notion that baby boomers depressing stock values is a disservice to younger generations. It’s quite the opposite. If the Fed is right, it’s the baby boomers who will suffer. Only those in the selling phase of their investment lifecycle should want high stock prices. Over the next 20 years, that’s the baby boomers. Younger generations in the accumulation phase should love lower valuations.

But the Fed may very well be wrong.

First, its forecast rests on the fact that stock valuations were low in the 1980s, rising in the 1990s, and dropping in the 2000s — and that changes in age demographics fit those time periods nicely. But regardless of what its models say, it seems a bit rich to say this was causation, rather than random correlation.

Above all else, stock valuations were low in the early 1980s because short- term interest rates were in the double digits. It didn’t make sense to pay 10 times earnings for a stock when you could earn 15% in a money market account. And valuations were high in the 1990s because of a momentary lapse of sanity. Dot- com stocks didn’t trade at a zillion times revenue because baby boomers were in their prime earning years; they traded that high because the world was stuck in a this-time-is- different mindset that pervades all bubbles. Declining valuations over the past 10 years have been a correction of that bubble. All of those events could have — and likely would have — played out regardless of demographics.

More broadly, the question of who baby boomers will sell their retirement assets to can, I think, be answered simply: the younger generations.

The baby boom generation is associated with being huge because it’s considerably larger than generations before it. But those baby boomers had kids. Lots of them. There are now millions more Americans between age 20 and 35 than age 50 and 65. Broken out by generation, the U.S. has a fairly young population: