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Boomer Outflows
25 May 2016
War Room
HiddenLevers War Room
Open Q + A
Macro Coaching
Archived webinars
CE Credit
Idea Generation
Presentation deck
Accountabili...
Market Update
Aging + Markets: Theory
Aging + Markets: Reality Today
Scenario: Boomer Outflows
Boomer Outflows
NEW
HiddenLevers
MARKET UPDATE
Market Update
sources: HiddenLevers, Marketwatch 1 2, Houston Chronicle
Oil bankruptcies
mounting
China:
Kids are
all righ...
HiddenLevers
AGING + MARKETS: THEORY
Aging + Markets: Schools of Thought
• Key Proponents: SF Fed
Researchers, Research
Affiliates, Harry Dent
• Claim a relati...
Aging + Markets: Optimistic View
sources: Vanguard, NBER
The relationship between increases in % of retirees and stock
ret...
Aging + Markets: Pessimistic View
Research Affiliates
Data from 60 countries,
model market return by age
group
Found stron...
HiddenLevers
AGING + MARKETS: REALITY TODAY
Reality: Demographic Snapshot
sources: HiddenLevers, US Census Bureau, Populationpyramid.net
worker base shrinking
1980 20...
Reality: Baby Boomers + US Equities
• Boomers at age 40
Begin equity investing
• Market up 614%
• Boomers at age 60
• Redu...
Reality: Gen X + Millennials Investing?
Activity Boomers Millennials
Marriage Age 23 30
Household Formation(18-31) 56% 23%...
Reality: Mitigating Factors (Demographic)
sources: HiddenLevers, SF Fed, Forbes, Zacks
Boomer
retirements
coming slowly
(o...
Reality: Mitigating Factors (Market)
sources: HiddenLevers, SF Fed, Forbes, Zacks
Globalization of US Stock Market
Wealth ...
HiddenLevers
SCENARIO: BOOMER OUTFLOWS
Scenario Update: Demographics Emphasis
Boomer Outflows
Immigration Fight
GOOD: Millennials Fill Gap
source: HiddenLevers
Younger investors make up for Boomer outflows
Fixed income
fruitless for
M...
BAD: Gradual Decline
Boomers living longer + not retiring = no quick drain
source: HiddenLevers
lofty valuations
unsustain...
UGLY: Mass Exodus
PE decline
25  15
source: HiddenLevers
Boomers liquidate equities to fund retirement
worker/retiree
rat...
Scenario: Boomer Outflows
Good:
Millennials
Fill Gap
Bad:
Gradual
Decline
Ugly:
Mass Exodus
Market P/E
15
S&P
-40%
Market ...
Boomer Outflows – Take Aways
Low interest rates force
everyone into equities
2008 Financial Crisis made
Millennials distru...
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Boomer Outflows

HiddenLevers War Room presentation on Baby Boomers and their likelihood of liquidating investments to fund retirement.

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Boomer Outflows

  1. 1. Boomer Outflows 25 May 2016 War Room
  2. 2. HiddenLevers War Room Open Q + A Macro Coaching Archived webinars CE Credit Idea Generation Presentation deck AccountabilityScenario Updates
  3. 3. Market Update Aging + Markets: Theory Aging + Markets: Reality Today Scenario: Boomer Outflows Boomer Outflows NEW
  4. 4. HiddenLevers MARKET UPDATE
  5. 5. Market Update sources: HiddenLevers, Marketwatch 1 2, Houston Chronicle Oil bankruptcies mounting China: Kids are all right Uber self-driving cars
  6. 6. HiddenLevers AGING + MARKETS: THEORY
  7. 7. Aging + Markets: Schools of Thought • Key Proponents: SF Fed Researchers, Research Affiliates, Harry Dent • Claim a relationship between aging and market P/E • Claim other countries show negative returns corresponding to age • Key Proponents: MIT Prof. James Poterba, Vanguard research team • Claim weak relationship between aging and equity performance • Boomers won’t really sell a high percentage of stocks Optimists Pessimists sources: Vanguard, NBER, SF Fed, Research Affiliates
  8. 8. Aging + Markets: Optimistic View sources: Vanguard, NBER The relationship between increases in % of retirees and stock returns is weak at best NBER study found no relationship between stock prices and aging, and a mild relationship between P/E and aging Terrible R2
  9. 9. Aging + Markets: Pessimistic View Research Affiliates Data from 60 countries, model market return by age group Found strong negative impact for 65+ age group SF Fed Modeled P/E vs ratio of middle age to old in USA Found that P/E tracks with larger middle aged group Model indicates market P/E may fall until 2025 sources: SF Fed, Research Affiliates
  10. 10. HiddenLevers AGING + MARKETS: REALITY TODAY
  11. 11. Reality: Demographic Snapshot sources: HiddenLevers, US Census Bureau, Populationpyramid.net worker base shrinking 1980 2025 Working Girl Golden Girls
  12. 12. Reality: Baby Boomers + US Equities • Boomers at age 40 Begin equity investing • Market up 614% • Boomers at age 60 • Reduce Equities • Market up 61% sources: Vanguard, Google Finance S+P Logarithmic Return Will returns get worse as Boomers age? 1985-2000 2005-now
  13. 13. Reality: Gen X + Millennials Investing? Activity Boomers Millennials Marriage Age 23 30 Household Formation(18-31) 56% 23% % with college degree 25% 38% Investment Vehicle 401(k) Robo Millennials Delaying life Burdened with debt Don’t trust stock market Equities held by Boomers age 46-64 Young Boomers did not own equities sources: AmericanProgress, Goldman Sachs, Vanguard, Bloomberg
  14. 14. Reality: Mitigating Factors (Demographic) sources: HiddenLevers, SF Fed, Forbes, Zacks Boomer retirements coming slowly (over 18 years) Boomers living longer + still investing Boomers need to invest due to lost savings in 2008 crisis
  15. 15. Reality: Mitigating Factors (Market) sources: HiddenLevers, SF Fed, Forbes, Zacks Globalization of US Stock Market Wealth Concentration 1% of Boomers owns 1/3 of Boomer assets 10% of Boomers own 88% of Boomer equities 20% of Boomers own 96% of Boomer equities Perpetually Low Rates + Low Yields
  16. 16. HiddenLevers SCENARIO: BOOMER OUTFLOWS
  17. 17. Scenario Update: Demographics Emphasis Boomer Outflows Immigration Fight
  18. 18. GOOD: Millennials Fill Gap source: HiddenLevers Younger investors make up for Boomer outflows Fixed income fruitless for Millennials/Gen X Wealthy Boomers don’t need to sell Foreign demand continues EM outflows seek shelter in US equities
  19. 19. BAD: Gradual Decline Boomers living longer + not retiring = no quick drain source: HiddenLevers lofty valuations unsustainable PE decline 25  20 gradual equity sales don’t compress PE Millennial entry delayed
  20. 20. UGLY: Mass Exodus PE decline 25  15 source: HiddenLevers Boomers liquidate equities to fund retirement worker/retiree ratio falls sharply 2010 forecasted decline now 5 years late
  21. 21. Scenario: Boomer Outflows Good: Millennials Fill Gap Bad: Gradual Decline Ugly: Mass Exodus Market P/E 15 S&P -40% Market P/E 20 S&P -10% Market P/E 25 Millennials begin to enter equity markets, filling the gap left by aging boomers. Wealthy boomers hold 90% of equities, making excess sales unlikely. The gradual decline in Boomer market participation is offset by younger investors, but market valuations cannot maintain current lofty levels. Boomers do shift away from equities, lowering demand for stocks and compressing S&P P/E to 15 by 2020s. S&P +35%
  22. 22. Boomer Outflows – Take Aways Low interest rates force everyone into equities 2008 Financial Crisis made Millennials distrust Equity markets 10% of Boomers own lion’s share of Boomer equities S+P PE Ratio will compress if Boomers start liquidating

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