Population Dynamics in Investing
I have remained bearish, although not to the extreme that I was bearish for much of my posting over the past year.
The level of debt and deleveraging is not over, imho. The commercial real estate and alt-A mortgage resets will continue to challenge the economy. The grossly increasing unemployment is going to result in new challenges where problems were not expected. Take a family living within it means and able to save that loses a high paying job. Well, if they can find a new job it is likely to be far less pay, 60% of the old pay is not unlikely. Can they make ends meet now?
I still see a negative cycle happening and this is going to leave little cash for the markets. The aging population mostly like is not going to commit new money to the markets.
The birth rate has to decline, people simply can't afford kids and people will put off starting families. Canada had a serious debt problem in the mid 80s and I know so many people that put off having kids until they just ended up never having kids. I am one of them. I have an older friend who had 4 kids in my age range and has had 1 grandchild and now all of his kids are past the age that people start families. There is one child between me and my sister and my brother.
Canada's decline in birth rate was a function of the lack of opportunity for child rearing aged adults, and this will repeat in the US, only it will be a bigger problem because of the difference in demographics. When this happened in Canada the top age for baby boomers was in their 40s and it was the bottom end boomers who stopped having children. Now in the US the top age boomers are retiring.
Those that are forward thinking about events will see the link of 500 years of uncontrolled population growth completely linked to the belief that the stock market historically goes up forever over the cost of living over the long term and I really think the exploitation of population growth is over and in a macro perspective the world markets are entering the declining side of the business cycle curve and it will be unlike any of the past as increasing population can no longer carry the markets to new highs like it has historically.
That's my belief and I'm sticking to it.