Post by jeffolie on Jan 29, 2007 22:01:47 GMT -6
Show Me the Money: Demographic Influences Going Forward
In December I wrote a rebuttal concerning the extreme wealth distribution bifurcation (Gini Coefficient) in America. Today’s blog focuses this even further to take a look at key shifts at work in US age demographics. I specifically look at the Boomer groups: pre-retirees 55-64, and older boomers 45-54. I am employing keep it simple Occam’s Razor principles to my hypothesis. My assumptions are as follows: 1. as more people age past about age 50 (peak spending), they consume far less than they did when they were five to ten years younger. 2. as more people move into retirement age 62 and beyond, they enter a liquidation phase where investments, pensions, and financial assets are needed to live on. I offer the following chart from AARP to support my first assumption.
Click to enlarge
Actually this drop off in age influenced consumer expenditures gets well under way by the early 50s, with the peak around age 46-50. The drop in spending from age 50 to 60 is quite steep and pronounced.
The next charts on the population pyramid you will need to eyeball closely. First focus on 2000, and notice a substantial bulge of individuals just in front of their peak spending years who were ready to push through the python. There were about 23 million (add both genders) in both ages 35-39 and 40-44. Note that another 20 million were in their peak spending years of 45-49. Next notice how small the cohorts were in the “liquidation cycle” group of 60 plus. When we couple this with the massive credit Bubble created in the post 911 era, is there any wonder that the consumer has been so overwhelmingly aggressive in this cycle?
Next let’s look at 2005. The peak spenders were powering through. However, now you can see another new development as well, and that’s the approaching shadow of the 50-59 cohorts. Indeed, we can even see about a million count buildup in the 60-64 cohort over 2000. Nothing huge yet, but an inkling.
Next let’s fast forward to 2010. Whereas there were about 23 million in each peak spending 40-44 and 45-49 cohort in 2000, that’s now faded to 21 and 22 million respectively. What really stands out though is the big increase in all the lighter spending cohorts from 50 on. For instance the 60-64 cohorts which had about 12 million folks in 2000, has 18 million in 2010. There were 18 million 50-54 in 2000, in 2010 that’s up to 22 million. If you just extrapolate this gradually further into the 2010s then one can see even fewer peak spenders, and even more in the liquidation and consumption slow down cycle. Clearly the ongoing very old late stage plays seen today in consumer and retail stocks/sectors can only be called twilight speculations, one whose best days are passing.
This brings us to the next logical question, what will the liquidation cycle necessary to support Boomer retirement look like? The data is from 2001 and thus is dated, but readers already know what’s happened in the last six years as far as additional wealth bifurcation. The distribution for Boomers at least for the Top 10 is very similar to that of the rest of the population. The next second 10% of the Boomer group appears to be fairing a little better, most likely because they were first receivers of the housing Bubble. However, that also makes them more vulnerable to a give back. AARP has written a report detailing this Gini coefficient.
The next chart is the eye opener, because it shows how totally dependent at least 60% of the Boomer group will be on Social Security. Of course the opposite side of this coin is that the government’s obligation to support this large group is just going to take off year after year going forward. Even the highest quintile group will be heavily dependent on pensions and assets. Given the risks and pricing I have consistently described in my blog, this expectation is highly problematic. Interestingly the 3Q, 2006 flow of funds report gives us clues as to what those with assets hold: 47% is in real estate and equities, 16% is in tangible depreciating assets and consumer durables like autos, boats, etc, and only 14% is in ready cash assets. They are going to have to sell something, and to who, foreigners? And who will Uncle Sam borrow from to float the absolutely critical Social Security payments? Can they go back to foreigners once again?
Connecting the dots, we arrive at a clear hypothesis. Although it won’t happen overnight, the trend will be both powerful and steady. As more and more Boomers push into their fifties, they will cut back on consumption. As they push into their sixties, they will need to liquidate savings and assets to subsist. However, for many it is unclear exactly what they will liquidate, as they have little cash. Also given global trends toward outsourcing to younger, cheap labor abroad and casting off those with high health expenses and costs at home, it is also highly problematic as to what kind of demand there will be for aging Boomers who choose to defer retirement? And of course I haven’t even addressed the issue of health care for this population, and that’s grist for a complete post. In terms of wealth and income this looks very Brazil like. But in terms of age and demographic pyramids it’s Brazil tipped on its head with a lot of poor dependent older folks, a sad prospect indeed.
wallstreetexaminer.com/blogs/winter/?p=362#more-362
In December I wrote a rebuttal concerning the extreme wealth distribution bifurcation (Gini Coefficient) in America. Today’s blog focuses this even further to take a look at key shifts at work in US age demographics. I specifically look at the Boomer groups: pre-retirees 55-64, and older boomers 45-54. I am employing keep it simple Occam’s Razor principles to my hypothesis. My assumptions are as follows: 1. as more people age past about age 50 (peak spending), they consume far less than they did when they were five to ten years younger. 2. as more people move into retirement age 62 and beyond, they enter a liquidation phase where investments, pensions, and financial assets are needed to live on. I offer the following chart from AARP to support my first assumption.
Click to enlarge
Actually this drop off in age influenced consumer expenditures gets well under way by the early 50s, with the peak around age 46-50. The drop in spending from age 50 to 60 is quite steep and pronounced.
The next charts on the population pyramid you will need to eyeball closely. First focus on 2000, and notice a substantial bulge of individuals just in front of their peak spending years who were ready to push through the python. There were about 23 million (add both genders) in both ages 35-39 and 40-44. Note that another 20 million were in their peak spending years of 45-49. Next notice how small the cohorts were in the “liquidation cycle” group of 60 plus. When we couple this with the massive credit Bubble created in the post 911 era, is there any wonder that the consumer has been so overwhelmingly aggressive in this cycle?
Next let’s look at 2005. The peak spenders were powering through. However, now you can see another new development as well, and that’s the approaching shadow of the 50-59 cohorts. Indeed, we can even see about a million count buildup in the 60-64 cohort over 2000. Nothing huge yet, but an inkling.
Next let’s fast forward to 2010. Whereas there were about 23 million in each peak spending 40-44 and 45-49 cohort in 2000, that’s now faded to 21 and 22 million respectively. What really stands out though is the big increase in all the lighter spending cohorts from 50 on. For instance the 60-64 cohorts which had about 12 million folks in 2000, has 18 million in 2010. There were 18 million 50-54 in 2000, in 2010 that’s up to 22 million. If you just extrapolate this gradually further into the 2010s then one can see even fewer peak spenders, and even more in the liquidation and consumption slow down cycle. Clearly the ongoing very old late stage plays seen today in consumer and retail stocks/sectors can only be called twilight speculations, one whose best days are passing.
This brings us to the next logical question, what will the liquidation cycle necessary to support Boomer retirement look like? The data is from 2001 and thus is dated, but readers already know what’s happened in the last six years as far as additional wealth bifurcation. The distribution for Boomers at least for the Top 10 is very similar to that of the rest of the population. The next second 10% of the Boomer group appears to be fairing a little better, most likely because they were first receivers of the housing Bubble. However, that also makes them more vulnerable to a give back. AARP has written a report detailing this Gini coefficient.
The next chart is the eye opener, because it shows how totally dependent at least 60% of the Boomer group will be on Social Security. Of course the opposite side of this coin is that the government’s obligation to support this large group is just going to take off year after year going forward. Even the highest quintile group will be heavily dependent on pensions and assets. Given the risks and pricing I have consistently described in my blog, this expectation is highly problematic. Interestingly the 3Q, 2006 flow of funds report gives us clues as to what those with assets hold: 47% is in real estate and equities, 16% is in tangible depreciating assets and consumer durables like autos, boats, etc, and only 14% is in ready cash assets. They are going to have to sell something, and to who, foreigners? And who will Uncle Sam borrow from to float the absolutely critical Social Security payments? Can they go back to foreigners once again?
Connecting the dots, we arrive at a clear hypothesis. Although it won’t happen overnight, the trend will be both powerful and steady. As more and more Boomers push into their fifties, they will cut back on consumption. As they push into their sixties, they will need to liquidate savings and assets to subsist. However, for many it is unclear exactly what they will liquidate, as they have little cash. Also given global trends toward outsourcing to younger, cheap labor abroad and casting off those with high health expenses and costs at home, it is also highly problematic as to what kind of demand there will be for aging Boomers who choose to defer retirement? And of course I haven’t even addressed the issue of health care for this population, and that’s grist for a complete post. In terms of wealth and income this looks very Brazil like. But in terms of age and demographic pyramids it’s Brazil tipped on its head with a lot of poor dependent older folks, a sad prospect indeed.
wallstreetexaminer.com/blogs/winter/?p=362#more-362