Demographic economics-- I have been thinking about this topic for a while a now, and recently in the media, some big names have added some very important insight to the topic. See below for links: David Gerstenhaber, Argonaut Capital Management. http://www.cnbc.com/id/15840232?video=1559074127&play=1 Bill Gross, PIMCO. http://canada.pimco.com/LeftNav/Featured+Market+Commentary/IO/2010/Investment+Outlook+Bill+Gross+Privates+Eye+8-2010.htm Ian Shepherdson, High Frequency Economics Bloombergs Tom Keene: On the Economy July 21: Ian Shepherdson: Housing, Disinflation, Stocks, Economy (Keene On Demand: On the Economy) Subscribers to Keene on Demand can listen to the interview, but the basic argument that Shepherdson makes is that the bigger the proportion of peak earning and saving individuals, the higher the equity valuation (given an earnings growth rate) at a given point in time, as was the case during 1980-2000. The premise underlying this conclusion is the fact that during this time, more people (baby boomers, natural buyers of stock) were building up there 401K as fast as they could. Shepherdson also mentions a strong correlation between P/E valuations on the S&P500 and the proportion of people in there peak earning years. As time passes, and the baby boomers begin to hit retirement age, they go from being net buyers of stock to potentially net sellers as they require a more stable form of income, i.e. Bonds, therefore leading to the natural conclusion that P/E valuations will revert back to some time, where these demographic trends were not in place. Shepherdson makes the point that he doesn’t believe valuations will revert back to the 1970s (inflationary period), but there is a downward pressure and basically the next generation of equity investors are going to find it much harder to make money relative to investors in the 1990’s (sweet spot). Many of the arguments made in these 3 pieces really throw cold water on the bullish arguments that are out there currently, but I’m posting this information for those who are at the start of there career and wonder as I do, where our generation will end up. Some food for thought. Hopefully we can get an insightful thread going here and help those trying to chart a path toward prosperity (Kudlow-esque, I know).
I don’t understand any of this, can I get a one sentence summary.
It basically says that the demographic shift from young to old will cause many people to dump equities.
Thanks bro. Makes sense I guess, unless the “old” expect to live until they are 120, then maybe they hold equities until 101, then flip to bonds.
I think the retirement age is more important, because that’s when most people imagine their wealth accumulation stops.