Order from a Major Online Bookstore
Ultimate Book Price Comparison Engine
Save Your Time And Money
| AnyBook4Less.com | Order from a Major Online Bookstore |
|
| Home | Store List | FAQ | Contact Us | | ||
| Ultimate Book Price Comparison Engine Save Your Time And Money |
||
 |
Title: Global Aging and Financial Markets: Hard Landings Ahead (CSIS Significant Issues Series) by Robert Stowe England, Robert Hormats ISBN: 0-89206-392-0 Publisher: Center for Strategic and International Studies Pub. Date: 01 May, 2002 Format: Paperback Volumes: 1 List Price(USD): $15.95 |
Average Customer Rating: 5 (1 review)
Rating: 5
Summary: Good review of the impact of global aging on the financial m
Comment: The author reviews numerous economic forecasts measuring the impact of global aging on the financial markets. Global aging is a looming major macroeconomic event. The huge baby boom generation will start retiring in 2011. By 2025, the entire baby boom generation will have retired. During this period, the baby boomers will be drawing down on their pension and retirement funds. The baby boomers draw downs will put huge downward pressure on bonds and stocks prices.
Pension funds will experience rising negative cash flows as their benefit claims will surpass their contributions. In the U.S. for defined benefit pension plans, Schieber and Shoven forecast that the gap between benefit claims and contributions will deepen from - 1.5% of payroll in 2040 to - 4% in 2065.
Regarding precise equity return outlook there is little consensus. The study from Schieber and Shoven forecasts that real equity returns will decline from an historical 8% down to 5%. Another study by Jan Mantel from Merrill Lynch claims that equities will not decrease in price throughout the retirement of the baby boomers. But, he did not express by how much equity returns would decline if equity prices grow at a slower than historical rate. Other economists forecast worse scenarios including bear markets lasting decades.
There are three factors that will negatively affect equities. The first one, as mentioned, is the baby boomers selling their stock holdings throughout their retirement years. The second one is the pension funds changing their investment mix away from equities towards bonds and cash to meet upcoming liabilities associated with retirees. Mantel forecasts that between 2000 and 2050 pension funds will reduce their equity allocation from 72% to 60% of investments in the U.K, from 63% to 54% in the U.S., from 45% to 30% in the Netherlands, and from 40% to 28% in Japan. Because these four countries account for 80% of the World's private defined benefit pension assets, this shift in investment mix will represent a huge downward pressure on equity prices. The third factor is an anticipated increase in worldwide interest rates associated with a rapid increase in government borrowing through the industrialized World to support government retirement systems and elders healthcare benefits. Governments worldwide are ill prepared for the funding of these liabilities. Roseveare, an OECD economist, predicts government debt will reach staggering levels by 2030, and represent 339% of GDP in Japan, over 200% throughout the EU, and 115% in the U.S. These debt levels are a multiple of current levels.
Reviewing the investment outlook for the second quarter of this century (2025 to 2050), we derive the following:
1)Equity prices and returns will be affected by a decrease in demand;
2)International equities should fare worse than U.S. ones because both the EU and Japan have more rapidly aging population and have weaker fiscal position associated with higher government debt level;
3)Bond prices and returns will be affected by a staggering increase in supply due to rising government debt. International bonds will be more vulnerable for the same reason as for equities;
4)Real estate will be affected by a declining demand associated with lower demographic growth and lower rate of household formation;
5)All medium to long term investments will be affected by a rise in real interest rates associated with a huge increase in government borrowing throughout the industrialized World to support government programs aimed at retirees.
There are several moderating factors that may reduce the impact of global aging. However, these arguments are not convincing. The first one is that all the above predictions regarding pension plans are associated with defined benefit plans where a pension fund pays a predetermined annuity to retirees. Apparently, the more modern defined contribution plans (401K) would have a different and more robust cash flow than defined benefit plans. Retirees would not draw down on their 401K holdings as quickly. This makes sense, but the dollar amounts in defined contribution plans worldwide is small compared to defined benefit plans.
The most intriguing economic argument that would counteract the negative impact of global aging relates to equities demand and supply equilibrium. If equities prices decline because of global aging, the cost of equity capital will go up for corporations. As a result, corporations will issue less equity and instead finance growth with bonds. Thus, the supply of equity will decrease and match the reduced demand for equity. And equity returns and prices ultimately will not be affected by global aging.
Unfortunately the demand and supply equilibrium argument is flawed. The reduction in equity supply, as depicted, will be minimal compared to the reduction in equity demand associated with pension funds selling equities both to meet retirees benefits and to shift their portfolio mix towards bonds. Also, for corporations to steadily finance their growth through bond financing will further jack up real interest rates. This is due to increasing bond supply and increasing the credit risk premium on corporate bonds. This increase in real interest rates will hurt both bonds and equities.
 |
Title: Macroeconomic Impact of Global Aging: A New Era of Economic Frailty? by Robert Stowe England, Jr. Shaw. E. Clay, E. Clay, Jr. Shaw ISBN: 0892063939 Publisher: Center for Strategic and International Studies Pub. Date: 01 November, 2002 List Price(USD): $18.95 |
 |
Title: Fooled by Randomness: The Hidden Role of Chance in the Markets and in Life by Nassim Nicholas Taleb ISBN: 1587990717 Publisher: Thomson Texere Pub. Date: October, 2001 List Price(USD): $27.95 |
 |
Title: A Mathematician Plays the Stock Market by John Allen Paulos ISBN: 0465054803 Publisher: Basic Books Pub. Date: 13 May, 2003 List Price(USD): $25.00 |
 |
Title: Tomorrow's Gold: Asia's Age of Discovery by Marc Faber ISBN: 9628606727 Publisher: CLSA Pub. Date: 12 November, 2002 List Price(USD): $35.95 |
 |
Title: The Fiscal Challenge of an Aging Industrial World (Significant Issues Series) by Robert Stowe England, Sylvester J. Schieber ISBN: 0892063912 Publisher: Center for Strategic and International Studies Pub. Date: 01 January, 2002 List Price(USD): $21.95 |
Thank you for visiting www.AnyBook4Less.com and enjoy your savings!
Copyright� 2001-2021 Send your comments
