Generational Imbalance

THE.FuTuRe: "You are getting old Contender, you need someone to look after you like the government......."

CoNTeNDeR: "Promises, promises, promises - all great on paper but they need to be backed up with real deeds and wealth"

In the fields around us the farmers are already bringing in part of the harvest. Most of the farmers we have seen are in their golden years.

Heirs are no longer interested in the family business. They are attracted to the bright lights of the cities. Is the void going to be filled by bigger machines and robots guide their way. Society is ageing...

• Does the natural generational cycle (ageing to renewal) pose problems to future investments

• Where is capital currently being misallocated

• What are the likely investment pitfalls in the years ahead

• Do we need to change the way we allocate capital

• What financial independence opportunities can arise from the boomer retirement and the natural redistribution of wealth to Generation X and Y and Millenials?  
• Latest Cyclically and Inflation Adjusted Market Analysis Graphs
• Latest Dividend Value and Growth Dividend Stock Screen Results

A Generational Pyramid Gone Awry

The developed world has gone through dramatic economic and population growth. Vast numbers of jobs have been created to keep the cohort in pocket and spending.

We thank them for Cheese in Cans, Pink Slime, Asbestos, Nuclear Accidents, Cities in the Desert, Mega bugs such as MRSA, Snout Houses, Dolly the Sheep, SAW films, The Benefit and Entitlement Society..... a benefit to society, get real.
 
This population growth has had huge implications on the age distribution of society. We now have a more mature society due to improvements in life expectancy and lower birth rates.

A smaller group of young people versus retirees  will be paying the benefits older society has bestowed on itself.

The pyramid (see diagram below) now resembles an imbalanced Thai temple, precariously weak in places but never the less still standing...just....one more gold statue on the top and it is game over.

"Boomers" born after the first world war are now retiring en-mass. They primarily hold the wealth of western nations as well as the important positions in society. They still have the majority of the vote - and they actually use it to their benefit(s)!

Vast wealth and benefits have skewered in their favour from high property prices, ownership of shares / businesses, and cheap access to health care.

It was possible to accrue this wealth as they also benefited from low taxes, free / cheap education, a booming economy (that 'paid for' infrastructure that helped to turbocharge the economy) had access to cheap resources such as oil and land.

20 - 40 year olds are increasingly reliant on the bank of mom and pop to get started in life delaying their true freedom and independence. Their jobs are increasingly demanding, having been educated trained to keep the machines running, don't think, just do it in a very productive manner. While you are at it you will have to pay higher taxes for our your benefit(s).

Fortunately there is light at the end of the tunnel with the changing of the guard.

As the boomers have to draw down their assets and loose their high profile positions in society their influence will naturally wane. This transition will have significant implications on taxes and investments.

Boomer Misallocation of Capital

We have been blessed with the boomer improvement in technologies that have driven higher life expectancies, mass long distance transport and the marvel of the internet to name a few. At the same time huge waste (resources) and lost opportunities (free energy) slipped through our grasp in the last few decades.

"the definition of insanity is doing the same thing over and over again, and expecting a different result." (Albert Einstein)

A forefront critic of the boomers way of life has been James Howard Kunstler. He correctly in my opinion highlights all of the literally stupid decisions that have been made by the boomer generation. Here are a few decisions that really make you go hummmm....

1. Too big houses - to many resources used to make them, too many resources to maintain them and too many resources to run them. Just consider all of the paint and termite protection, heating of empty spaces.

   

   We used to live in much smaller houses in the US Source Activerain

2. Too big heavy, inefficient cars to get to the too big house too far away from work. Literally burning capital (fuel) - what a waste?
   
   

   

   Peak Oil Production? Something wrong with this picture? Source Matthew Stein

   

   Gas Production is increasing - Time to Switch to a Natural Gas Car?

3. Introduction of the consumer model - buy buy buy, throw away or get a bigger house to fill up!

   

   Plastic Fantastic until it breaks, degrades or is obsolete

4. Creation of powerful self interest groups that are able to buy & erode democracy - keeping the status quo has been profitable for politicians and companies alike. 
5.  Accumulation of huge amounts of debt and benefits

   

   Rising faster than GDP - Source Eric Garland
   

6. Health / sick care pillaging from the public purse and health. Yes we treat illnesses instead of preventing them. Advertising of known foods and products that damage our health are allowed Freedom of choice right? Where is the profit in selling good healthy food that you do not need to eat in huge quantities and contain addictive unhealthy ingredients.

   

   Health Care or Sick Care? Source healthreformtrends
   

So What Happens Next?

What will our ageing societies do with their accrued 'wealth'. Is it going to be sold, spent and squandered. Vegas here we come, exhausting trips to far away lands, Face lifts, Sports cars, Golf, Fishing, Bridge club pointless really.

Perhaps wealth and knowledge (retirement is a terrible thing really - all that know how and wisdom consigned to the past) is going to be passed down, invested or given?

Unfortunately I believe the former will happen. Party time for the old timers! You can't begrudge them some of their time in the sun we can just hope it leaves something left over of value for the future.

Do consumption stocks do OK? They will be indiscriminately sold to 'pay' for the boomers retirement along with every other stock but their goods will still be required.

Does the selling have a detrimental effect to the entire market and drive down the retirement income resulting in a death spiral with ultra low interest rates, ultra low bond rates, ultra low dividend returns and lower retirement payouts?

Boomers Change their Consumption Habits

Increases in consumption

1. More health care
2. More eating out
3. Continue to work longer to maintain current lifestyle
4. More luxury goods
5. Holidays
6. Retirement entertainment activities (golf, spar, tennis etc.)

 Decreases in consumption

1. No commute to work
2. Move to a smaller house
3. Selling investments to pay for retirement

Younger Generations Deal with the Fall Out

So how will the boomer benefits be paid for in the mean time, unfortunately through higher taxes. Younger generations will be spending / saving / investing less not a good equation in anyone's book?

Entertainment - less eating out / cinema
Clothing - wearing out clothes before buying new / less designer brands
Smaller, more fuel efficient cars
Holidays closer to home
Less investments / money to save in stocks / bonds etc.

Does this cause a feedback loop into the ultimate middle class source of wealth - housing:

• Boomers want to downshift
• Gen X / Y cannot afford to buy a house / apartment and have to rent
• Larger sized properties drop in value - boomer that are late to the downsize party are loosing out
• Boomers en mass stampede to sell their larger properties making the housing crash worse.
• All housing starts to drop in value and finally finds an equilibrium at a fair price for society
• Unfortunately this re rating of housing has the possibility to leave devastation in its wake destroying huge swathes of paper wealth.
• What inheritance will be left? At least the housing is cheaper!

Perhaps this is why the financial system is being propped up with easy QE money to maintain the myth of asset wealth and the massive misallocation of capital that has taken place.

The Likely Winners in the Inevitable Reallocation of Capital?

We are going to redistribute capital whether we like it or not. The forceful destruction of debt and serfdom will cause a repricing of assets to their real world price / value.

By this I mean the price of everyday needs (food, shelter and energy) over wants and desires (designer goods, gizmo's, luxury holidays).

Knowing what we do where will the "Hero Generation" look to re-deploy this wasted capital creating a new boom in the global economy? A good starting point is to revert back to Maslow's pyramid of needs to get the basics right before wasting capital on silly items and activities.

Maslows Pyramid of Needs

1. Energy efficiency -  there are very simple energy efficiency steps that can be taken. Smaller house, well insulated, smaller car, collect rain water, turn off unused electrical goods etc.
2. All new building needs new planning guidelines based on a community self sustaining design
3. All products should be built to last - laws can drive this change.
4. Working from home should be actively encouraged and rewarded
5. Consumption must be reduced - anything that could go digital should (books, magazines, newspapers, bills, certificates and the like.)
6. More food needs to be grown locally and exotic food should be taxed very highly to reflect the energy it consumes in transport.
7. Education needs to change focus to help develop the industrious, autonomous, gregarious, go getting individuals needed in for the rapid re-design of the broken system.

All this buys us time to correctly allocate capital into robust (Anti Fragile) living arrangements. This would have the following benefits

1. Healthy living- reducing our need for health care
2. Cheap energy security - compressed air / electric cars run of solar arrays
3. Reduction in pollution - less packaging = less plastics = less toxins = less persistent waste that takes years to degrade = less landfill waste.
4. More biodiversity - just read about the die off of the bees - a very bad problem for our food security highly likely related to mono culture crops and pesticides.

Choosing Prosperous Financial Independence Investments

Perhaps the ever grinding higher stock market indexes will hit a plateau or gradually decline for a prolonged period of time while a readjustment is made. By a re-adjustment I mean a re-allocation of generational wealth from the boomers to us youngsters.

Once this adjustment has taken place a new freer and prosperous time is likely to appear with the rules of the game rewritten in a fairer economic system.

In this is the case a stagnant / declining index is not viable for the 4% draw down rule, which has been fuelled by consistent growth in the world economy, may hit a wall for a period of years through the great reallocation of capital and generational wealth.

Here are some inflation adjusted and cyclically smoothed market and commodity data graphs
In this period of time perhaps stock picking wins over index tracking. Perhaps due to the destruction of wealth of industries that rely on huge profit margins from brand loyalty, cheap resource inputs and frivolous spending - avoiding these sectors could be the difference between true financial independence or back to work.  

Going defensive by choosing dividend value growth stocks with lower yields in industries with goods and services people NEED may be the better approach to take. Have a look at this blogs stock screen*:



These companies could be bought at a current high price to the future as boomers indiscriminately sell off their stocks. The peace of mind is that you can live off the dividends alone that should be safe as the companies profits are derived from people's NEEDS.

Cash equivalents can be kept on hand to wait for the inevitable stock pullback / crash to take advantage of opportunities.

Trailing sell stops can be applied to your current portfolio (on non core holdings) to help preserve capital in the case of a crash.

Peace, prosperity and happiness

CoNTeNDeR

* The stock screen and market analysis information is provided for entertainment purposes only. I have never worked in the financial industry and am self taught. Always do your own research and seek professional advice as required and refer to the big fat disclaimer that comes with this site.

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