{"id":28105,"date":"2012-03-09T10:43:06","date_gmt":"2012-03-09T15:43:06","guid":{"rendered":"http:\/\/countingpips.com\/fx\/2012\/03\/09\/the-u-s-aging-crisis-a-threat-to-stock-market-prices\/"},"modified":"2012-03-09T10:43:06","modified_gmt":"2012-03-09T15:43:06","slug":"the-u-s-aging-crisis-a-threat-to-stock-market-prices","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2012\/03\/09\/the-u-s-aging-crisis-a-threat-to-stock-market-prices\/","title":{"rendered":"The U.S. Aging Crisis: A Threat to Stock Market Prices?"},"content":{"rendered":"<div align=\"left\"><script type=\"text\/javascript\">\ntweetmeme_style = 'compact';\n<\/script><br \/>\n<script type=\"text\/javascript\" src=\"http:\/\/tweetmeme.com\/i\/scripts\/button.js\"><\/script>\n<\/div>\n<div><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-27994\" title=\"The Global Aging Crisis: A Threat to Stock Market Prices?\" src=\"http:\/\/www.investmentu.com\/wp-content\/uploads\/2012\/03\/stock-market-prices.jpg\" alt=\"The Global Aging Crisis: A Threat to Stock Market Prices?\" width=\"220\" height=\"220\" \/><\/p>\n<p>Robert Arnott claims that the U.S. aging crisis is a threat to future stock market prices. But do the numbers add up?<\/p>\n<\/div>\n<p>There\u2019s a new scaremonger in town. And his name is Robert D. Arnott, a portfolio manager, asset-manager executive and Chairman of Research Affiliates in Newport Beach, California.<\/p>\n<p>Mr. Arnott has a simple thesis. Over the next 10 years, the ratio of retirees to active workers will balloon. Retirees, of course, must eventually sell their stocks to support themselves. But there will be fewer young investors around to buy them. Ergo, returns on stocks over the next 10 to 20 years will be anemic.<\/p>\n<p>If this sounds simplistic, congratulations. You probably have a brain and at least a modicum of common sense. This type of \u201cstock market analysis\u201d is really no analysis at all. More to the point, it doesn\u2019t work. Just ask failed economic futurist Harry Dent, whom <a href=\"http:\/\/www.investmentu.com\/2011\/October\/the-harry-dent-indicator.html\">I\u2019ve written about before<\/a>.<\/p>\n<p>While it\u2019s inevitable that there will be 10 new senior citizens for each new working-age citizen over the next decade, that in itself doesn\u2019t portend paltry equity returns.<\/p>\n<p>For starters, let\u2019s look at what\u2019s happening to the <a title=\"Russian Wildfires Highlight the Global Population Growth-Food Supply Conundrum\" href=\"http:\/\/www.investmentu.com\/2010\/August\/global-pop-growth-food-supply-conundrum.html\">world population<\/a> as a whole. There are currently seven billion human beings living on the planet. At the current growth rate, that total is likely to hit eight billion within a decade.<\/p>\n<p>Now, if you believe that investors in China, India, Brazil and other countries will have no interest in buying companies like <strong>Procter &amp; Gamble<\/strong> (NYSE: <a href=\"http:\/\/www.google.com\/finance?q=PG\" rel=\"nofollow\" target=\"_blank\">PG<\/a>), <strong>ExxonMobil<\/strong> (NYSE: <a href=\"http:\/\/www.google.com\/finance?q=XOM\" rel=\"nofollow\" target=\"_blank\">XOM<\/a>), or <strong>Coca-Cola<\/strong> (NYSE: <a href=\"http:\/\/www.google.com\/finance?q=KO\" rel=\"nofollow\" target=\"_blank\">KO<\/a>) in the future, no matter how inexpensively they\u2019re priced, I guess you might put some credence in Mr. Arnott\u2019s thesis.<\/p>\n<p>But that\u2019s highly unlikely. Citizens of capitalist countries are getting wealthier and better educated all the time. And the world is becoming more integrated. Would you really have a problem buying shares of <strong>Toyota<\/strong> (NYSE: <a href=\"http:\/\/www.google.com\/finance?q=TM\" rel=\"nofollow\" target=\"_blank\">TM<\/a>), <strong>British Petroleum<\/strong> (NYSE: <a href=\"http:\/\/www.google.com\/finance?q=BP\" rel=\"nofollow\" target=\"_blank\">BP<\/a>) or <strong>Nestle<\/strong> (<a href=\"http:\/\/finance.yahoo.com\/q?s=NSRGY.PK\" rel=\"nofollow\" target=\"_blank\">OTC: NSRGY.PK<\/a>) if they were bargains?<\/p>\n<p>Of course not, regardless of the demographic trends in Japan, Britain, or Switzerland.<\/p>\n<p>Mr. Arnott doesn\u2019t just miss the big picture about the future, however. He also misinterprets the past. In a recent <em>Wall Street Journal<\/em> interview, for example, he talks about the collapse of Japan\u2019s stock market over the last 23 years and blames it on the country\u2019s aging population.<\/p>\n<p>I have a better explanation. When the Nikkei 225, Japan\u2019s leading stock market benchmark, climbed to nearly 40,000 in 1989, it was a bubble of epic proportions. Many stocks traded at more than 100 times earnings. And real estate was even more absurd. Just the 1.32 square miles that encompassed the Imperial Palace in Tokyo were valued at more than all the real estate in California <em>combined<\/em>.<\/p>\n<p>Now that\u2019s nuts. Crazier still were the Japanese banks that loaned money against these wildly inflated property values. This led to a protracted <a title=\"Lessons From Japan\u2019s Great Depression\" href=\"http:\/\/www.investmentu.com\/2009\/March\/japans-great-depression.html\">banking crisis<\/a> that Japan\u2019s political class refused to clean up.<\/p>\n<p>To imagine that the two deflationary decades that followed this mania were the result of an aging population is like blaming this year\u2019s warm winter on your aching big toe. Yet Arnott insists we should hunker down since \u201c[Japan\u2019s] demography is 10 years ahead of ours.\u201d<\/p>\n<p>Want to know what will really determine <a title=\"Why Trillions of Dollars on the Sidelines Maybe A Good Thing\" href=\"http:\/\/www.investmentu.com\/2009\/February\/current-stock-prices.html\">stock prices<\/a> in the future? Earnings. I challenge you to look back through history and find even one publicly traded company that increased its profits quarter after quarter, year after year, and the stock didn\u2019t tag along.<\/p>\n<p>Perhaps our aging retirees will buy less in the future and contribute less to U.S. corporate profits. But there are billions of consumers around the world hungering for homes, computers, cars, phones, health insurance, credit cards, pharmaceuticals and golf clubs. They\u2019re likely to be an engine of world <a title=\"The Future of China\u2019s Economic Growth\" href=\"http:\/\/www.investmentu.com\/2011\/November\/china-future-economic-growth.html\">economic growth<\/a> \u2013 and rising U.S. corporate profits \u2013 for decades to come.<\/p>\n<p>Don\u2019t let anyone scare you otherwise.<\/p>\n<p>Good Investing,<\/p>\n<p>Alexander Green<\/p>\n<div>\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=n3iymTm18w8:zHVkFn2Lc-8:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=n3iymTm18w8:zHVkFn2Lc-8:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=n3iymTm18w8:zHVkFn2Lc-8:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=n3iymTm18w8:zHVkFn2Lc-8:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=n3iymTm18w8:zHVkFn2Lc-8:gIN9vFwOqvQ\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=n3iymTm18w8:zHVkFn2Lc-8:gIN9vFwOqvQ\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?a=n3iymTm18w8:zHVkFn2Lc-8:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/InvestmentU?i=n3iymTm18w8:zHVkFn2Lc-8:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/InvestmentU\/~4\/n3iymTm18w8\" height=\"1\" width=\"1\" \/><\/p>\n<p>Article by <a href=\"http:\/\/www.investmentu.com\/\" target=\"_blank\">Investment U<\/a> <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Robert Arnott claims that the U.S. aging crisis is a threat to future stock market prices. But do the numbers add up? There\u2019s a new scaremonger in town. And his name is Robert D. Arnott, a portfolio manager, asset-manager executive and Chairman of Research Affiliates in Newport Beach, California. Mr. Arnott has a simple thesis. &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/fx\/2012\/03\/09\/the-u-s-aging-crisis-a-threat-to-stock-market-prices\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;The U.S. Aging Crisis: A Threat to Stock Market Prices?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-28105","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28105","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/comments?post=28105"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/posts\/28105\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/media?parent=28105"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/categories?post=28105"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/fx\/wp-json\/wp\/v2\/tags?post=28105"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}