This article was published by The McAlvany Intelligence Advisor on Wednesday, March 29, 2017:
For years Harry Dent (shown) has attempted to turn his demographic analyses into investment advice, with middling performance. It seems that when his advice doesn't turn out well, he writes another book.
Take, for example, his The Demographic Cliff: How to Survive and Prosper During the Great Deflation Ahead. He contends that the economy can be traced and tracked using the behavior of consumers as they grow, mature and age. Young people marry, have families, buy homes, automobiles, and gadgets. Their acquisitions peak at around age 45 or so, and then decline over time into retirement.
His “waves” are like seasons: “a spring boom with mildly rising inflation; a summer recession with inflation rising to a longer-term peak with major wars; a fall boom with falling inflation, new technologies moving into the mainstream, and a credit bubble that leads to high speculation and financial bubbles; and then, finally, the winter season with the bursting of the bubbles, debt-deleveraging, and depression.”
For Dent, that winter season was supposed to start in 2014.
Over the last three years the SPX has gained 33 percent. Over the last five years it gained 80 percent.
And so he wrote another book: The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich. From its flyleaf one reads:
After the blustering bull market of 2009-2015, we are now preparing for a shakeout more painful than anything we've seen before. We have eight years of unprecedented government stimulus and money creation to thank for stretching this bubble beyond imagination and making the burst more painful than anything we've ever experienced.
Enter another demographic expert, Chris Hamilton, blogging at Econimica. Hamilton notes that as the Baby Boom generation ages those with tax-deferred investment accounts are being forced to liquidate them, thanks to the law regarding “required minimum distributions” or RMDs. It applies to anyone at age 70½ with a tax-deferred IRA, SEP, profit-sharing plan, or 401K. The law requires approximately one-fifteenth of the accounts' assets be liquidated so the IRS can finally get its cut.
And, according to Hamilton, this is a problem for the stock market:
At 70.5 years of age, retirees are mandated by force of law to sell tax-deferred assets accumulated over their lifetimes, and do so over a 15-year period. Conversely, buyers [the younger cohort age 25-60] have a 35-year window of accumulation….
Over the past 65 years there were three new buyers for every new seller. [But] over the next 25 years there will be three new sellers for every new buyer.
In simple terms, the younger working cohort is in no hurry to save for their retirement, while those turning 70 are forced to sell over the next 15 years.
For Hamilton, the outlook is even more dismal: “Full-time job growth among the 25-54 year old cohort has stalled since 2000 … and if we make an assumption that [that] slower growth results in just a 15 percent reduction in retirement savings among the 25-60 year old population, the mandated sellers [will] overwhelm buyers.”
How can one explain the stock market's performance in light of these pressures and prognostications? First, Trumponomics has encouraged many who have been standing aside to take positions in companies likely to benefit from it. Many of those forced to take their RMDs are paying the taxes and then putting the remainder right back into the market. Many of the boomers are continuing to work, not only adding to the economy's GDP but also adding to their savings and investment accounts. Wall Street doesn't operate in a vacuum, which means that investors from abroad (i.e., China, India, the UK) are finding America to be a better, safer, more liquid, and more profitable place to put their investable assets to work.
And of course there's always the plunge protection team, ever ready to step into the breach if and when a selloff appears.
It's one thing to get the demographics right. It's another thing altogether to turn them into successful investment advice.
The Demographic Cliff: How to Survive and Prosper During the Great Deflation Ahead
The Sale of a Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich
Econimica: Required Minimum Distributions Spell Disaster (& Even Greater Intervention) As Sellers To Overwhelm Buyers
Zacks: The Impact of Baby Boomers' Retirement on the Stock Market