The whole purpose of my writing is to help you, the reader 1) Get a handle on your finances; and 2) Make better, if not more informed, financial observations and decisions.
When it comes to the markets and the economy, many of us are happy to drink what I call, ‘It’s a random walk on Wall Street Kool-Aid.’ Some of us only wake up after a shock and awe event has hit us. Others don’t want to be like Rip Van Winkle, a man who wandered into the mountains and slept for twenty years.
My dear readers prefer to do all things possible to see around the curve so that we can prevent being down and out, or at least, bounce after an ugly surprise as opposed to breaking apart at the seams, ending life as we prefer to know it.
Starting in 2008, Central Banks around the world did something unprecedented. We have never been here before. It almost appeared to be orchestrated. As I pointed out in my article, “Pay no attention to the man behind the curtain,” Central Banks were like the Wizard of Oz crafting make-believe that governments are so powerful they can effectively come into the economy room, place a thermostat on the wall, and the machines will silently do the work of cooling the environment when it gets too warm and heating up the country when it gets too cool.
Such magic on real estate and stock markets may work for a while. But one thing is for certain. Governments are powerful, but not all-powerful, as it is Mother Nature that holds the trump card.
“It’s not that I’m so smart, it’s just that I stay with problems longer.” - Einstein.
The new wand that governments wave is of course Quantitative Easing, the latest and greatest, man-made invention to spark the global economy. But wait dear consumers, there’s more! In June 2014, the European Central Bank (ECB) went a step further when they took interest rates negative. Zero short-term interest rates were insufficient to do the job to make the consumer to (you know the mantra) spend, baby spend. In fact, as Harry Dent puts it, “If you’re not going to spend, you have to pay to leave your money in the bank!”
Like the musicians on the Titanic, the Swiss picked up their instruments following suit in December 2014, followed by the Danish and the Swedes who joined the party. In late January 2016, the Bank of Japan discovered zero interest rates weren’t sufficient, so they went negative too.
Do not be surprised if the Federal Reserve follows suit. The markets will probably like it. At least for a while you may see upward volatility. Do understand that whether we live in the ghetto or in the suburbs we all enjoy our drugs of choice.
Perhaps you saw the recent story on 60 Minutes where people living in suburbs across the country were waking up to the fact that their wonderful children were hooked on prescription drugs and heroin. I’m not judging. I’m just observing. Many of us at various income levels just can’t say no to drugs. My observation includes the Conejo Valley.
What should we be learning from Japan?
Harry Dent said on February 5, 2016, “Japan can’t seem to get a grip on the fact that, as a country, they’ve been slowly walking off the plank since 1989 back when everyone (except us) thought they were going to take over the world. They actually started experimenting with QE back in 1997, right after the last of its baby boom peaked in spending as we forecast would happen. And in early 2013, they really stepped on the gas, ultimately tripling their QE!”
Japan has adopted negative interest rates as the latest effort to revitalize its dying economy. But the country has been falling down the demographic cliff after its baby boom ignited a surge of spending in the 1980s. Look at Japan’s Spending Wave. This shows a 47-year lag from birth to peak spending:
A similar situation is taking place right here at home. You see it may be that it’s not such a random walk on Wall Street and it isn’t so damn complicated.
With the consumer driving 70% of US spending, our economic heart beat is based on ordinary people following predictable spending patterns based on age. That’s pretty simple. For some time, the baby boomers have been the primary driver of the consumers.
Here’s what that means. 76 million boomers in a country of 317 million people, according to the US Census Bureau were born between 1946 and 1964. This means that George Walker Bush turns 70 in 2016 and Michelle Obama turns 52.
Now add 10-20 years and you tell me what these people are going to spend money on? I’ll tell you what I see, other than spending more and more on health care costs, there is not one thing this group needs or wants to buy any more. As I have shown you, after age 60, according to the US Census Bureau, spending on average falls like a waterfall. It’s not about the prediction. It’s all about the preparation. Get ready now.
Want to make better and informed financial decisions? Make time to speak with John Grace today.
The opinions voiced in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.
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