Baby Boomer Apocalypse and Salvation

​We are in the summer months now. Even a quick trip to the car to get an umbrella leaves my clothes sticking to me. And while I hate the heat, I really enjoy the sporadic thunderstorms the summer brings. I do know that is not so for many people, especially those with old injuries and arthritis. I can see firsthand the discomfort and pain all the humidity and pressure bring my wife. 

​Hopefully, you’re all having fun with kids and grandkids, vacation, camps, and sports. Robyn, Carter, and I just took our annual, one-day round trip to Charleston to celebrate a birthday with the cousins. I despise the Rock Hill to Charleston route. It is a white-knuckle trip competing for every inch on the interstate. The only interruptions to that battle are the construction zones and slowpokes spreading chaos. Well, that’s the general theme... but occasionally other drivers follow the rules of traffic and rules of courtesy. During those rare occasions, I take the time to appreciate the beauty of South Carolina.
 
While I’m sure most of you have better things to do right now than be bored by heavy investment talk, I have a few ideas I’d like to share with you. I do this in hopes of countering the usual suspects of fear and negativity delivered to us all daily by the news. We are constantly collecting reasons why we should be fearful about investing, creating a growing list of possible ways everything could blow up and lead to ruin. I believe part of my role as investment advisor is to provide direct reasons why those narratives might be wrong, if available, or competing narratives of how things might go right.
 
In the 1990s, it was predicted that the retirement of the baby boomers would lead to a great market collapse. As most of us know, the baby boom generation dwarfs the generations beneath it. This prediction was based on the idea that all baby boomers would retire at the same time, and the assumption that they would all “de-risk” their investments, or sell stocks and put all their money in “safer” fixed income. Because there would be so many people selling stocks, and not enough people buying those stocks (smaller younger generations), this would lead to a dramatic drop in stock prices. Well, the boomers have been retiring en masse now for some time, and that big retirement phase will continue heavily into 2027 and beyond. However, there hasn’t been a dramatic drop in prices from this scenario. The proposed selling, if occurring, is spread out over long periods. Many people today hold larger allocations of stock in their portfolios, including older people during their retirement years because they are living longer.
 
The threat of inflation is another topic that continues to be a hot selling point. Inflation means things cost more, and it is therefore a threat for those in retirement who have limited income. It makes consumers stop consuming, and businesses stop growing, which depresses the economy. The news tells us government spending and tariffs are our biggest threats for inflation. It is true that our government has been spending too much for many, many years now. Congress and the current administration are fighting back and forth about proposed changes to spending (as they always have), and what is currently on the table today will not fix anything. However, in total, neither should their propositions significantly add to any current projections of overall debt, economic growth, or inflation. Real fixes will require more sacrifice from politicians and voters than they appear to be willing to offer today.
 
As for tariffs and inflation, logically it makes sense that prices going up means inflation. However, inflation is a rise in the general level of prices of goods and services in an economy. Tariffs are price increases for specific goods and services, not all goods and services. Yes, there is still the 10% baseline tariff for most imports, but it is different on a country-by-country basis and does not involve things produced in the U.S. Because some things cost more, we must spend more to obtain those things. That in turn leaves us with less money to spend on other things. And that reduces the demand of those other things… in turn, reducing the prices of those other things. Some prices go up, while some prices go down. Therefore, tariffs can occur without an actual economy wide sting of inflation.
 
More than any other factor, inflation happens when governments put a lot of extra money into the system. If the Federal Reserve were to start any new form of quantitative easing, we would experience more inflation.
 
In closing, the U.S. is the second largest manufacturer in the world (China is first) by a very large margin above third place (Japan). We do a ton more with less workers, being the most productive manufacturer in the world. Likewise, U.S. consumers today continue to be extremely strong, because the biggest group of consumers are the retiring baby boomers. They have the most wealth, are spending it on their kids/grandkids, vacation and other services, and on health care. Our employment is also exceptionally solid, because the service and health care industries are fully employed to serve the strong baby boomer consumer.
 
I hope you’re having a wonderful Summer!
 
Justin Anderson