Demographics are destiny, and unfortunately for Western economics, destiny isn’t on their side.
Speaking at the Mauldin Economics’ Strategic Investment Conference in Orlando, founders of Real Vision TV Raoul Pal and Grant Williams dissected the profound demographic changes now taking place and how investors should position their portfolios for those changes.
Most of the population growth in the past half-century has come from Middle-Eastern and Asian regions. In contrast, population growth in Western democracies has been in sharp decline.
What Are the Implications of Aging Populations for the West?
As people near retirement, they become more conservative in their spending. With consumption accounting for 70% of the US economy, this acts as a huge headwind to economic growth.
In fact, adverse demographics are a key reason why this recovery has been the slowest one on record in the post-war period.
Unfortunately, it’s going to get worse…
This year, the first Baby Boomers turn 70, and that’s significant for financial markets.
Due to the mandatory minimum drawdown laws for retirement plans like IRAs and 401(k)s, when you turn 70 ½, you are forced to withdraw at least 5% of the value of the plan each year.
This forced selling will flood the market with billions worth of equities and bonds, which will push down prices.
Another reason Raoul and Grant believe adverse demographics spell trouble for the West is that historically, debt levels have tracked median age.
In fact, for over four decades, the labor force participation rate has been highly correlated to the Federal Reserve’s balance sheet.
With over 3.5 million Baby Boomers turning 65 each year for a dozen years, Raoul and Grant believe economic growth will continue to be sluggish and debt levels will rise.
So, with demographics weighing down on the US, where should investors deploy capital based on these powerful trends?
With an exploding population now accounting for over 17% of the global total, both Raoul and Grant are bullish on India.
To conclude, Raoul named his three top trades going forward: “Longer term, I think US Treasuries and Iran are a great play. Shorter term, I think being short oil could prove profitable.”
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