Global Aging and the Stock Market

If you’re like me, you view anything and everything from the United States Federal Reserve Bank with a jaundiced eye.

Frankly, I believe “the Fed” is at the heart of many of the fiscal problems here in the United States and around the world.

Still, I’m not one of those who turns my eyes away from data just because of the source.

I was taught at an early age by my parents and by a handful of good teachers to read as much as possible on any topic – but to do so with a critical mind.

In other words, understand who the author is and read very carefully. Watch for words and phrases that don’t match the data. But, always look for data or information that can further develop an understanding of the topic or issue being studied.

In fact, I go out of my way to read and listen to those who I am naturally at odds with because it helps me to develop countervailing arguments and to sharpen my perspective on any issue. Over the course of a 15 year career in talk radio, I always brought on guests and callers I disagreed with so that I could dissect their arguments. (Besides, it was more fun that way!)

Bottom line: I believe those who just read or listen to those who they always agree with develop weak minds and show little ability to understand a topic more than an inch deep. They live in an echo chamber that deafens them to important information.

As members of the Self-Reliance Institute, I suspect you have and seek the ability to read and think critically as well.

So, in that vein, I want to share an Economic Letter that was released by the Federal Reserve Bank of San Francisco just before Christmas. The letter is headlined, “Global Aging: More Headwinds for U.S. Stocks?”

Here’s the conclusory paragraph that the authors put up front:

“The retirement of the baby boomers is expected to severely cut U.S. stock values in the near future. Since population aging is widespread across the world’s largest countries, this raises the question of whether global aging could adversely affect the U.S. equity market even further. However, the strong relationship between demographics and equity values in this country do not hold true in other industrial countries. This suggests that global aging is unlikely to create additional headwinds for U.S. equities.”

OK. If we just take those four sentences at face value, it would be easy to not read any further and conclude that the San Francisco Fed wants us to believe that while the aging of the U.S. population could impact U.S. stock values “in the near future,” “global aging” will not add any additional downward pressure on those stocks.

Additionally, if you do read the letter further, you’ll find the usual wishy-washy statements that economists almost always include in everything they write so that they can claim later they weren’t wrong no matter what happens.

Therefore, it’d be easy to look at this letter and ignore it because: A) It’s from the Fed and I rarely trust the Fed, and B) It’s filled with a lot of language designed to protect the authors’ credibility no matter what the future brings.

So if you ignore the letter, I’ll understand why.

I’ll also think you’re making a big mistake.

Here’s why.

Let’s read the letter with a critical mind and see if it contains any important and indisputable facts that we can take away after all the other verbiage and charts and economists’ mumbo-jumbo.

If we read the letter that way, I believe there is a key fact and conclusion that could impact our thinking when it comes to investments for the foreseeable future.

That fact and conclusion is contained in this statement from the letter:

“[P]rojected declines in stock values based on these data have become even more severe. Our current estimate suggests that the P/E ratio of the U.S. equity market could be halved by 2025 relative to its 2013 level.”

In plain English, that means ignore all the other information in this letter about “Global Aging” and the stock market because if you read closely you’ll find that information is speculative – it’s a guess at best.

The one solid fact in this report is that when it comes to the U.S. Stock Market, the aging of the population here in the United States could cut the price of stocks in half over the next 10 years.

So the question we must ask ourselves is:

Why would anyone invest in a stock market that could drop by 50% over just the next decade?

I suppose we’d all answer that question differently. But I know how I look at the one projection in the Economic Letter that is based in fact – not speculation.

I look at that fact and it reinforces my instinct and current economic view in a way that I’ll be looking for Alternative Investments to the U.S. Stock Market.

OK. That’s a lot to chew on. But I’d love to hear what you think.

Write me at [email protected] and let me know if you believe the U.S. Stock Market is the safest place to invest over the next 10 years or if we all should be looking for Alternative Investments.

If so, what investments do you believe are better/safer than the stock market?

As a relevant aside, do you believe the stock market is rigged?

I look forward to your emails!

Be safe, secure and free!

Rob Douglas – Former Washington DC Private Detective