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Boomers Are Turning 71—These 4 Charts Paint A Perfect Storm It Will Set Off For Investors
Boomers Are Turning 71—These 4 Charts Paint A Perfect Storm It Will Set Off For Investors
Few investors understand the magnitude of the looming demographic crisis and its ramifications.
The first Baby Boomers turned 70 last year. At the same time, the US fertility rate is at its lowest point since records began in 1909.
This disastrous combination means by 2030, those aged 65 and older will make up over 20% of the population.
Source: Mauldin Economics
In the meantime, the percentage of working-age cohorts are in decline. Combined together, these trends create a perfect demographic storm for the US economy.
Here’s why.
A Deflationary Environment
The chart below shows that growth in the working-age population has been a leading indicator of nominal GDP for decades.
Source: Census Bureau, Bureau of Economic Analysis
One of the reasons for that is that spending drops on average by 37.5% in retirement. Given that consumption accounts for 70% of US economic activity, this is a major deflationary force.
Economic growth and corporate profits go hand in hand. Which means this trend will cut down company earnings and, in turn, investors’ returns will go down further.
That’s not yet the worst news. Along with declining profits, America’s aging population has ever more profound implications for investors.
A Big Shift in Financial Markets
According to BlackRock, the average Boomer has only $136,000 saved for retirement. Even assuming 7% returns—when they’re more like 2%—it’s a yearly income of only $9,000. That’s $36,000 shy of the ideal retirement income.
This huge funding gap in pensions means Boomers will be forced to look for income elsewhere. Historically, that has come from bonds.
The research shows once you hit the age of 65, you go through the most profound asset class shift since you were in your 30s. You start to trim your equity and start to raise your bond exposure.
Source: Mauldin Economics
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Mark Yusko: I’m Telling You Right Now, the US Is Going to Have a Massive Crash
Mark Yusko: I’m Telling You Right Now, the US Is Going to Have a Massive Crash
“I’m telling you right now, the US is going to have a crash and it will be massive,” asserted Mark Yusko at Mauldin Economics’ Strategic Investment Conference.
In his keynote speech, Mark Yusko, CIO of Morgan Creek Capital Management, outlined where he sees the biggest opportunities and risks for investors are today.
Demographics Are Destiny
Mark began with the big story of the SIC 2017—demographics.
He believes that efforts to generate growth through fiscal stimulus and tax cuts will prove futile because the working-age population in the US is declining. As such, consumption—which makes up 70% of the US—will continue to fall.
Mark thinks instead of taking off, the US economy is on the cusp of a recession.
Headed for Recession
Mark points to key indicators such as credit growth and tax revenues, which are declining, as proof a recession is around the corner.
Source: St. Louis Fed
“Every time a President leaves the White House after two terms, there is a recession within the first year of the new administration. I believe this time will be no different.”
So, what does this mean for investors?
Sell US Stocks
Since 2012, the earnings of S&P 500 companies have gone nowhere, yet the market is up 70%. This rise has all been multiple expansions. As such, US equities are one of the most expensive class of assets in the world today.
With the S&P 500 trading at record highs, top investment management firm GMO projects returns will be negative over the next seven years.
Source: GMO
With US markets fully priced, Mark says his firm is deploying their capital elsewhere.
European Banks Are a Buy
Despite all the hype around US financials due to “Trumponomics,” Mark points out that European financials have vastly outperformed their US counterparts since the beginning of the year.
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