Most investors and traders alike believe that market moves are based on daily media events. That might be true if you like to invest your nest egg at a table game in Vegas. For true long term investors, demographics are a much better tool to predict the direction of the stock market.
The simple facts are that an economy needs more spenders than buyers to grow. If it is reversed, you get the opposite. Through demographic study we know that people spend the most money from ages 31 to 48. This is the very premise of what I talk about in Facing Goliath – How to Triumph in the Dangerous Market Ahead. For reasons that I bet you understand, the last 5 or 6 years of child rearing are the most expensive. Think of piano lessons, ballet class, expensive sports equipment, tutoring, braces, first cars, and 2nd cars from 1st wrecked cars along with higher insurance rates that go with it.
Older kids need more space so you buy a bigger house with more amenities. Dad becomes one big ATM. Once kids leave the nest, typically about 48 years old for the parents, this spending grinds to a halt. Of course you don’t just shrivel up and die. You do drink your best wine, buy your nicest car and go on your fanciest vacations after 50, but rampant spending wanes fast.
As adults enter their 50’s, people become savers as they start to see their retirement upon them. Empty nesters downsize their house, unwilling to pay for those expensive storage facilities otherwise known as empty bedrooms. This is highly deflationary and causes a substantial slowdown in GDP growth.Can you guess what demographic group was in their peak spending mode in the 1980’s and 90’s, and then started hitting 50 at the turn of the century? That’s right, the Baby Boomers, all 90 million of them. That’s why the stock and real estate markets began their slide in 2007.
The data for the US is not looking so good at the moment. Americans aged 45-49 peaked in 2009 at 23% of the population. According to US census data, this group then began a 13-year decline to only 19% by 2022.
So why didn’t the market continue to languish after the 2008 crash? For two reasons: First he must have read my book, and 2nd because Ben Bernanke was a scholar of the Great Depression. From that he essentially threw money out of helicopters and installed his ultra-low interest rate policy and waves of fiscal stimulus known as quantitative easing.
Agree or not, so far Helicopter Ben has been pretty successful, and his replacement, Janet Yellen, will carry on with the mission to prevent a demographic disaster until things change around 2022. That’s when the demographic headwind becomes a tailwind due to the baby boom from the baby boomers. They are called the Echo Boomers.
That said, we all know that even trees do grow to the sky and corrections and bear markets are a normal, albeit painful (if you do not have a plan), part of life. My guess is that when interest rates start to rise, or more likely when the Federal Reserve even hints that they will, this new painful chapter will emerge. For the shorter term, I am actually quite positive. Even though most are bearish, I see stocks possibly drifting sideways to downwards until earnings start in a few weeks, and then rally in the 4th quarter on the heels of better than expected earnings announcements.
When you combine what I’ve written above, Worry has certainly been in abundance this year. With ISIL, Syria, Iraq falling apart (again), Ebola, and the worst weather America has seen in decades, you’re probably asking why in the world you would want to be anywhere near investments, right?
Well that’s easy. You can’t leave it in the bank to rot, losing money to inflation and taxes everyday so it’s worth about half in 10 years. More importantly, however, there are always places to make money, if you have a plan, a written well-thought-out plan, and you know where to look.
If you are retired or close to it, the key is to be properly invested with a qualified retirement advisor. This will ensure you are looking at the big picture and getting the returns you “need,” but with the least risk possible, so you don’t get crushed during the next crash or correction. As you well know, you simply cannot replace this money….so you need a plan…for the good times and the bad…
…… and that’s where we can help. To learn more about The Springer Investment Approach, which is our powerful proprietary Investment Management Strategy designed to manage risk and deliver returns in any market, or to get a free second opinion on your portfolio, simply reply to this email, or give me a call at 916-925-8900 for a no-cost no-obligation today!