How Low Will It Go?
November 20, 2008
– Comments (12)
I was asked for a clairification on my Dow 7000, S&P 700 position.
To me, this is where I start looking at the market again, but that doesn't mean a 100% full commitment back into the market. I may look and decided I don't want to touch it. It is my re-evaluation point.
Longer term, I don't see how the markets perform like they have in the past. I think Japan is a good place to look and I think that because of demographics. They've had to deal with the aging population problem first.
The market is about supply and demand. Right now there is a glut of people in pre-retirement age and they are buyers in the market, through their personal savings, retirement savings and indirectly through their company pension plans. With an aging population the numbers start to swing to less demand for investment as more people are drawing from the plans. It is a gradual thing, but when you have an age bubble, as with the baby boom, it can't do anything else but push the price of investments beyond a fair value, and I can't see how the reverse is avoided as the population ages.
And if you look at the generation below the boomers, well, so many are struggling, when mom and dad pass on many of them will not want investments with their inheritance but will want to reduce and over burdening debt. So, longer term I think as their is an acceleration of death in the baby boom population that is not going to be good for investments.
I think we are also going to see major problems in that people have been paying for health insurance that has not been putting adequate reserves aside for their commitments, indeed, I think we are going to see more insurance is bad as the population ages and their are more demands for payouts.
I tend to think we are at the end of a historical trend and going forward people who make their investments based on past experiences are going to find those experiences do not live up to expectations.
It is interesting when you look on your life and question what was one of the most significant things you studied and I'd say it was an economic history course in university. I remember at the time complaining bitterly about what the heck did studying slave and serf economies have anything to do with today, but, I think that course has shaped my thinking about the market more then most other things that I've have done. I see the debt slaves of today as being fairly equivalent to serfdom.
The other thing about economic history that I found interesting was how often there were swings in the age that people started families. I had the mistaken belief that this business of starting families later was somehow related to careers, but it isn't. When there are good jobs without further training people go to those jobs. Increases in career development happens when opportunities decline, as does the average age for first child in families. And history repeats itself this way over and over again.
So, I don't have a clue as to how low it will go, but I think there are long term challenges that will make the investing environment very different then in the past.
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