Blame it on Demographics

I am convinced that this crisis we are in is mostly due to demographics of the baby boomer generation. Blame it on them.

The boomers are starting to retire, their production has peaked, their cash inflow has peaked, their leverage has peaked, their consumption has peaked. They will start selling assets to support their lifestyle in retirement. The convulsions right now are the beginning of this transition.

When all is said and all is done, the Japanese crisis was one of aging demographics as well. I got 4 kids on my own, doing my part.

Demographics and monetary levels drive the current financial crisis.

Comments

Anonymous said…
Ah, a confirmation of my recent thught process. Yes, I think this will be very important as an investment thesis for 10-15 years.
December 27, 2008 at 5:56:00 PM PST
adt43wt342 said…
Why the anonymity?

As an investment thesis, i do think it is interesting. From a macro standpoint it is a driver. If money flows is a factor of people x cash flow, then you have a square factor going in with the boomers retiring. An aging population is not producing as much and not consuming as much. Add the debt overhang, if you were taking on 3% more today, you have 3% less tomorrow, making it a -6% on consumption, and you start seeing GDP contraction in the tens, twenties...
Quantitative easing by the US alone will mean an appropriation through imbalances. It geo-politically sucks... not stable.
December 28, 2008 at 7:32:00 AM PST
Anonymous said…
This is a great point and important. It is also why most USA suburban real estate will be a bad investment for a long time to come unless it cash flows nicely and has stable rental income. Invest in RE for solid income...don't expect any capital appreciation.
December 31, 2008 at 5:59:00 PM PST
jb said…
If you want to see a complete book digging deeply into this thesis, read "The Great Boom Ahead" by Harry S. Dent. A consumer-investor treatment (vs. scholarly) published in 1993, it spends most of its pages justifying the boom that would occur from then until 2007 - driven by baby boomers being in their peak spending years, which would have a huge upward economic influence.

The relevant point now is that the "boom" continued - until the boomers started to retire in volume in 2007, and started to (a) spend less (kids grown, less "stuff" to buy, etc.), and (b) pull their money from their 401ks.

His global predictions (on pages 17-18) have provide reliably correct at a macro-level.

His next macro-level prediction (from the book): The Mother Of All Depressions from 2007 - 2023.

You can read the first few chapters at Google Books. Frankly, he's been pretty right - and if he's right about the depression, hang on....
January 7, 2009 at 4:56:00 PM PST
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