Just a quick note regarding the problems caused by demographic imbalance.
As I have alluded to in my post on housing, over the last twenty years or so, the 'baby boomer' generation, amongst others, has piled it's earnings into investable assets. Whilst the Bank of England was focused on consumer price inflation, asset price inflation was allowed to run riot. If nothing else this exacerbated the current crisis by inflating property prices.
Of course this 'new money' invested into asset markets by an aging generation, apart from pumping up prices, and in the case of housing to the exclusion of the young, can only be temporary. The demographics show that the 'baby boom' generation is not followed by generations of a similar size. You can guess the effect this will have on the markets.
Buttonwood, of The Economist, has commented on this point whilst analysing where the best returns are expected going forward.
The results are sobering. The best annualised returns look set to come from high-yield bonds, which should earn a little under 6% over the next decade. For investment grade bonds, the expected return is an annualised 4%.
As I have alluded to in my post on housing, over the last twenty years or so, the 'baby boomer' generation, amongst others, has piled it's earnings into investable assets. Whilst the Bank of England was focused on consumer price inflation, asset price inflation was allowed to run riot. If nothing else this exacerbated the current crisis by inflating property prices.
Of course this 'new money' invested into asset markets by an aging generation, apart from pumping up prices, and in the case of housing to the exclusion of the young, can only be temporary. The demographics show that the 'baby boom' generation is not followed by generations of a similar size. You can guess the effect this will have on the markets.
Buttonwood, of The Economist, has commented on this point whilst analysing where the best returns are expected going forward.
The results are sobering. The best annualised returns look set to come from high-yield bonds, which should earn a little under 6% over the next decade. For investment grade bonds, the expected return is an annualised 4%.
As for US equities, given that both earnings and valuations are above trend, the expected return is just 2.3% a year (if you take the more optimistic view that the profits trend improved after 1958, you can bump this return up to 4.2%). Treasury bonds also offer a measly 2.3% a year.
What about alternative assets? Here the news is even worse. Gold, oil and property will all lose money for investors if reversion to the mean occurs, while the return on all commodities will be flat.
The problem, which Deutsche discusses at length (it is a 100-page note) is demographics. The baby boomers bought assets and pushed up prices in their working years; as they retire, this buying support will disappear .
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