Demographics, Destiny and Asset Markets Boeckh Investment Letter

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Here is an excellent article about one of my favorite topics; aging, and the economics problems it will cause.

As the world economy and financial system struggle to regain their footing, they must contend with a number of problems. One of these is a negative change in demographics. The population is aging rapidly and the proportion of retired to working people is rising sharply. While these are slow moving forces compared to, say, banking crises, they are powerful and

inexorable trends that cannot be “fixed”. Rather, we, and governments, must adjust to them and investors must pay attention to the complex investment implications.

This letter contains a special feature on the subject by Contributing Editor, George Magnus, Senior Economic Advisor, UBS Investment Bank. I have had the good fortune to share a platform with George at a prestigious Family Investment conference in Europe for a number of years and I have read his work for much longer. He is an original thinker with a very sharp intellect and a competency that stretches over many areas of economics and finance.

He has written the The Age of Aging: How Demographics are Changing the Global Economy and Our World (John Wiley 2008), which I strongly recommend to anyone interested in one of the most potent factors influencing our long-run destiny.

He has also just completed a book called Uprising: Will Emerging Markets Shape or Shake the World Economy (forthcoming in the fall).

Demographics, Destiny and Asset Markets

By George Magnus (Contributing Editor)

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The evolving financial crisis in the West and its long-term consequences has exposed deep-seated structural flaws in our economies, and in the global economic system. These span our susceptibility to deflation, the loss of traditional economic growth drivers, the integrity of public finance, the regulation of the banking system, weaknesses in labour markets, and the lack of discipline that obliges creditor countries, such as China, Japan and Germany to share the responsibilities for economic leadership and reform. But we are also starting to come to terms with a less visible and slow moving phenomenon that has a direct bearing on many of the structural problems we face, namely the onset of rapid aging.

Although demographic projections of population, life expectancy, and fertility are not free from error, the nature of aging means that for all intents and purposes, demographics are our destiny. A lively debate about rapid aging in richer economies has been going on for at least the last 30 years, and in its simplest form, it is about the essential question of “who’s going to look after grandma?”

A more contentious and neo-Malthusian form resides in the perceived threats of overpopulation, aided and abetted universally by longer life expectancy. The world’s existing population of 6.5 billion is expected to grow by a further 2.7 billion by 2050, almost all in emerging and developing nations. Although the populations of the U.S., and other Anglo- and northern-European countries are expected to rise slowly over time, those of Japan and Russia are already declining, and those of Germany, Italy and Spain will join them in the next five years. But population aging also has other weightier economic, social and political consequences that are emerging from the dark shadows cast by the financial crisis. Some are about the efficiency of our economic coping mechanisms as the labour force ages, and stagnates or declines. Others are about the pressure to rebuild public and private savings, and strengthen our ability to finance aging societies without punitive levels of taxation on our children or ourselves.

The rest of the article can be found at the following link emographics, Destiny and Asset Markets

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