Tuesday, June 30, 2009Demographic Collision Course
Great summary from Nielsen on the the demographic collision course we are on. Best parts below. If it is any comfort, it's a lot worse for Japan and China in the years ahead.
The recession of 2007–2009 has placed a great deal of strain on marketers and retailers of consumer products. Price and value have become more and more important, challenging marketers to rethink product and distribution. Everyone just wants things to get back to normal, but will they? While discretionary spending will return to moderate levels as markets rebound, the economy of the United States—as well as the rest of the more developed World—is well on the road to longer-term difficult times. The economic hard times to come do not stem from the misuse of arcane investment instruments that can take a degree in calculus to understand, but rather from simple demographics. The emerging marketplace will be very different than today, and filled with wide-ranging challenges.
Since the early 1970s, birth rates in the United States have been at least 40% lower than at the heights of the Baby Boom. When a falling birth rate is combined with a very large generation like the Baby Boom, the effect is a gradual aging of the population. The median age of the population increases as the large group grows older because there aren’t enough babies being added to balance them out. For much of the large group’s life cycle, they are typically a boon to the economy—especially when they reach their prime economic productivity years (usually from the early 40s into the middle 50s). However, as this large group continues to age, they stop being an economic asset and begin to become a burden—as the Baby Boom generation will become over the next several decades.
Aging populations place stress on an economy in two ways. First, if the generation is sufficiently large, retirement can lower the size of the labor force—particularly its most skilled and most experienced component—lowering overall economic productivity. Starting in the next two years until 2030, the number of persons who reach the retirement age of 66 will increase by over 100,000 each year throughout the Baby Boom retirement years. For many of the early years in that period, the number of persons who reach the age of 19 and enter the labor force will actually decline by more than 40,000 per year for the next decade.
The second impact of an aging population is perhaps larger—the costs incurred by society to care for a large number of retirees. Social Security will begin to run at a deficit in about eight years and will deplete its trust fund by 2041 unless changes are made now. At that point, money coming into the program would only cover about 70% of the money paid out each year. Medicare and Medicaid will deplete their trust funds in only about ten years and will be the largest component of all U.S. government spending by 2030.
Additionally, many private pension plans are currently under-funded, and given the current economic difficulties, may not have time to recover adding more people to the public dole. The Baby Boom generation has suffered a disproportionate share of the $11 trillion in lost market equity and $3 trillion in lost real estate value from the current recession and they will find it near impossible to retire and sustain their current standard of living—particularly the 38% who will be eligible to retire in the next ten years.
Monday, May 11, 2009A Good Read and some Happiness
It's been extra challenging to find new takes on our financial crisis that are accessible, interesting, entertaining, and educational. This article from the Atlantic Monthly qualifies on all counts. (Hat tip to John F. for pointing this one out). It's long but it is worth it. If you don't want to plough through it here are some of my favorite excerpts to entice you to read the whole thing:
I haven’t depended solely on Merrill Lynch for advice. I believed I could find investments for myself. I stayed away from mutual funds because I couldn’t figure out who ran them. And I applied Warren Buffett’s famous dictum—Don’t buy something you don’t understand—to my trading, so I bought, in our Merrill Lynch account, such companies as Johnson & Johnson and Procter & Gamble and Illinois Tool Works and Caterpillar, and these have been kind to us, until now. (I also bought the Internet company Ariba, because I heard about it from a guy who heard about it from a guy. It went up to about $1,000; I didn’t sell, of course, and now it’s at $8.) And every so often, I would follow the recommendations of the financial magazines, SmartMoney in particular, because for a long while I was an ardent consumer of financial pornography. No more. In the harsh light of recession, I find it hard to believe I listened to a magazine that, in August 2007, recommended American Express at $63 a share (a “conservative way to make hay from global credit-card growth”), which as I write this is selling for $13 a share; Wynn Resorts, $94 then, $20 now; HSBC, $93 then, $25 now; Washington Mutual, $36 at the time, seized by the government last September—rendering the stock worthless.
IT TURNS OUT that my crucial mistake was believing that the brokers and wealth managers and cable-television oracles who make up the financial-services industrial complex actually had my best interests at heart. Or so say the extremely smart—and wealthy—people I asked to help me figure a way out of my paralysis.
One of these people was Robert Soros, the deputy chairman of the fund started by his father, George. I went to see him at his office, where he spent two hours performing an autopsy on my assumptions.
“You think a brokerage should be a place you go to pay commissions for fair and unbiased advice, right?” he asked.
“Yes,” I said.
“It’s not. It never has been.” He then cited another saying of Buffett’s: “‘Wall Street is a place where whatever can be sold will be sold.’ You are the consumer of their dreck. What they can sell to you, they will sell to you.”
“But they told us—”
He went on: “You should be disheartened and disappointed. But don’t kid yourself. You’re a naive capitalist. They were never your advisers. Do not for a moment think that a brokerage firm is your friend.”
“So who’s my friend?”
“You don’t have one. This is the market.”
“Okay, that’s Merrill Lynch. What about the others?”
“They’re not your friends,” Soros said patiently.
“What about Chuck Schwab?”
“All brokers move products based on volume and commission,” he said.
I had a benevolent, advertising-induced understanding of Schwab. It was the billboards: “I’ve got a lot less money. And a lot more questions. Talk to Chuck.” And: “It’s not just money. It’s my money. Talk to Chuck.”
I thought that perhaps Schwab, a discount broker, might be able to answer the question Soros could not: Why had my full-service financial adviser stopped calling me?
I did what I was told, and called Chuck. His spokesman intercepted the call. I explained that I was trying to understand the role financial advisers play in the life of the small investor, but the spokesman, Greg Gable, said that Chuck would not, in fact, talk.
“We’re not going to be able to help you out,” he said.
But then I thought, This is Bill Ackman standing before me. He’s a great investor. Maybe he can give me some advice.
So this is what came out of my mouth: “What do you tell the ordinary mortal—say, the person who works in the press that you talked about—what do you say to the person who has $20,000, $50,000, $100,000, or $200,000, maybe, parked somewhere doing nothing? What is your advice right now for that person?”
I looked around. The wizards in the room were having difficulty calculating figures of such humble size. I had thought $200,000 sounded like a large and unembarrassing number. But the room reacted as if I had asked, “Bill, I have 75 cents in my pocket. Do you think I should buy Twizzlers or a big red gumball?”
THE WAY I SEE IT, it’s all a con game,” Cody Lundin was saying. “What I mean is that Wall Street has always been an illusion. Now it’s an illusion that’s crumbling. Wall Street is like someone who’s having heart trouble. It’s in constant need of resuscitation, but after a while, it just doesn’t work anymore. People think that Bernard Madoff was unique, that he was an illusion, but he’s just an extension of the same illusion, the same con game. This is one of the reasons I don’t like to have any debt. When you have debt, you become part of this illusion, and sometimes you get trapped by it.”
I asked Cody how he invests his money. “I don’t believe in the intangible economy; I believe in the tangible economy. When I have extra money, I buy tools, food, or land. I like to be able to see what I’m buying. And I really don’t like debt, so I’d rather not have certain things than be in debt to anyone. I just feel better knowing that I don’t owe money, and I feel good knowing that I can take care of myself. That’s the American way, to be able to be self-reliant.”
For the record, I don’t think the grid is buckling under the weight of consumer debt or the mistakes of AIG. But we’re in a strange moment in American history when a mouse-eating barefoot survivalist in the mountains of Arizona makes more sense than the chief investment strategist of Merrill Lynch.
“People need a plan, they need skills, and they need supplies. What would happen if the ATMs stopped working for a couple of days? People would panic. But you won’t panic if you’re prepared to ride out a disturbance.”
(Seth Klarman) agreed with Robert Soros that the financial-services industry treats the small investor not as a client but as a source of ready cash. “The average person can’t really trust anybody. They can’t trust a broker, because the broker is interested in churning commissions. They can’t trust a mutual fund, because the mutual fund is interested in gathering a lot of assets and keeping them. And now it’s even worse because even the most sophisticated people have no idea what’s going on.”
After 15 years of pabulum, I was enjoying, in a perverse sort of way, receiving straight talk from masters of finance.
I found this interesting quote on happiness last week here
As a motivational speaker and executive coach, Caroline Adams Miller knows a few things about using mental exercises to achieve goals. But last year, one exercise she was asked to try took her by surprise.
Every night, she was to think of three good things that happened that day and analyze why they occurred. That was supposed to increase her overall happiness.
"I thought it was too simple to be effective," said Miller, 44, of Bethesda. Md. "I went to Harvard. I'm used to things being complicated."
Miller was assigned the task as homework in a master's degree program. But as a chronic worrier, she knew she could use the kind of boost the exercise was supposed to deliver.
She got it.
"The quality of my dreams has changed, I never have trouble falling asleep and I do feel happier," she said.
Results may vary, as they say in the weight-loss ads. But that exercise is one of several that have shown preliminary promise in recent research into how people can make themselves happier — not just for a day or two, but long-term. It's part of a larger body of work that challenges a long-standing skepticism about whether that's even possible.
Saturday, November 22, 2008Sure You Want to Retire?
Just back from a booksigning in Goleta, just north of Santa Barbara, with John Morton (You are the Blessing) and Jsu Garcia (Spiritual Warriors dvd). I spoke about The Rest of Your Life. Half way through John-Roger showed up, much to the delight of everyone. He looked good and although he didn't do Q&A he made himself available to his adoring fans.
In my talk I mentioned Carrie Fisher's quote that in today's fast paced world "even instant gratification takes too long." In that vein I love this quote from Carlo Petrini:
We believe that we can add meaning to life by making things go faster. We have an idea that life is short--and that we must go fast to fit everything in. But life is long. The problem is that we don't know how to spend our time wisely. And so we burn it.
Fast food is not our enemy. We can all eat as we want. If we have an enemy, it is the abnormal rhythms in which we are living our lives.
To be slow means that you govern the rhythms of your life. You are in control of deciding how fast you have to go. Today, you might want to go fast, so you do. Tomorrow, however, you might want to go slow, so you can. That is the difference.
It is useless to force the rhythms of life. If I live with the anxiety to go fast, I will not live well. My addiction to speed will make me sick. The art of living is abut learning how to give time to each and every thing. If I have sacrificed my life to speed, then that is impossible.
Ultimately, 'slow' means to take the time to reflect. It means to take the time to think. With calm, you arrive everywhere.
Carlo Petrini -- Founder Slow Food
I enjoyed this post from Gail Vaz-Oxlade on retiring. Well worth a read. Here is an excerpt:
I’ve been a proponent of Restyling, as opposed to Retiring. While you may not want to do the job you’re doing right now, you can restyle to do another job, have another career, find another way to make a meaningful contribution while you make some money. Maybe not as much as before. Maybe more.
People are always talking about striving for work-life balance. When you’re doing something you really love, you don’t need to cut back so you can up your Couch-Potatoing. Instead of tossing work out the window completely, maybe the trick is to find something you love, get really good at it, and then restyle your life so that you can do more of it, and make some money too. People who are passionate about personal fitness become fitness instructors or personal trainers. What, you don’t think you need to stay flexile when you’re old? People who are passionate about gardeners learn to landscape. All that life experience comes handy, doesn’t it? People who are passionate about design, cooking, photography, mechanics, animals… well, you get my drift.