The Elephant in the Market Room

The market tries to ignore the elephant somehow. But the elephant remains.

The elephant in this case isn’t death, as in the Jason Isbell masterpiece it’s aging. We’re all doing it.

I was born at the height of the baby boom. For men that was 1955. For women, like my wife, it was her birth year, 1957. I will be 63 at my next birthday.

This means we’re both approaching retirement. Mine is virtual – writers retire to pine boxes. My wife’s is literal – she would rather be reading a story. The point is we’re not alone. My cohorts have always been the pig in the demographic python – we still are. 

My generation is also likely to live longer than our parents. Today a 66-year old can expect to live another 17 years, on average. 

That’s going to take a lot of money. While many of us don’t have it, and will rely on Social Security or other programs to get by (a political story) many of us do. My wife and I have been saving assiduously since our 20s.

So, let’s say you’re 65 and have a nest egg of $500,000. If you can invest that at 6%, that’s $30,000 of income, without touching the principal. At 3%, it’s $15,000. These are the kinds of calculations the thieves offering “reverse mortgages” do, if you don’t have the cash.

The point is, wouldn’t you rather your money earn 6%? Course you would.

There were 75.5 million Baby Boomers in the U.S., at the end of 2015, but only one-fifth had reached retirement age. Within 7 years, all of us will have reached that magic number. That’s going to be a lot of demand for income, for dividend stocks and for bonds with a yield. Rising interest rates are going to mean the difference between eating cat food and taking cruises.

Of course, that’s just one part of retirement, the good part.

As we age, we need more health care. We need more hospitalizations. We need in-home care, visiting nurses. Eventually, if we’re lucky, we will need nursing care. Do you know that, right now, the average nursing home can cost $7,000 per month?  Imagine what happens when the elephant gets closer to us?

One of my best friends in this life, Martin Bayne, entered nursing care in 2002, due to Parkinson’s. He and I have had a lot of conversations about this over the years. There’s the financial equivalent of a hydrogen bomb hovering over this country, and if we don’t blow up the planet it’s certain to go off.

Here is something even more frightening. The U.S. has it easy. Japan and Germany have a median age of 46. Half their people are older than that. China’s median age is close to our own, 37, but it’s rising faster, because people don’t immigrate to China. Immigrants are the only force that’s keeping us from a demographic nightmare. You think an American-born worker is going to wipe your ass when you’re 85? Think again.  

Let’s try to ignore the elephant somehow. Let’s talk instead about what this is doing to the markets, right now, and what it’s likely to do in the next few years.

I am an example. For years I have been a growth investor. I bought stocks like Amazon.com. Now I’m becoming an income investor. I will soon prefer stocks like Ford Motor and AT&T, which pay a dividend. See what that’s going to mean? Because there are 4 million of me, just those born in 1955, and every other boomer with money is following right behind me.

This is also going to change government policies. There is not only a huge, and growing demand, that we do something to fix our infrastructure in this country, but a huge, and growing market for the bonds that will create. The Franklin Templeton Georgia bond fund, which would provide tax-free income to folks like me, has a total return this year of 2.14%. We older folks are going want that to go up.

Want to know why Japanese and German companies are more risk-averse than American ones? Their investors are one big reason. Older money means American companies are going to be pulled in the same direction and, so too, American economic policymakers.

Until now, we could ignore this political and economic elephant. The aging of America’s biggest, most selfish generation was mostly theoretical. Now we’re aging-out. The elephant is in the room. It’s going to have an enormous impact on the markets, on government policy, and on what technologists choose to invest in for the remainder of my life.

Whatever your age, it’s going to have a tremendous impact on your life as well.