Demographics, Deflationary Forces, ZIRP And More
Market dislocations occur when financial markets, operating under stressful conditions, experience large widespread asset mispricing. Welcome to this week’s edition of “ World Out Of Whack” where every Wednesday we take time out of our day to laugh, poke fun at and present to you absurdity in global financial markets in all it’s glorious insanity. Photo…
(Continued from the embedded post above.)
...labour could fuel further wage growth, while fiscal expansion from rising healthcare and ageing costs could result in inflation?
After all, we know that life expectancy continues to rise so it’s not only reasonable but inevitable that this cost push will come.
Right now there is this incredibly one sided viewpoint in markets that we will experience deflation well into the sunset and, while that may happen, betting that way pays you exactly nothing. Sure, I guess bonds can go from negative to more negative but I’m not one for picking up pennies in front of a steamroller at not only the tail end of the debt super cycle but at the tail end of the demographic boom.
From a social perspective we do know that governments all over the industrialised world cannot sustain current pension plans and social obligations.
What then are their options?
They can try what Frau Merkel is trying by importing terrorists refugees but, as I mentioned recently, this comes with a cauldron of problems where the medicine is almost certainly worse than the disease. Merkel is pressing on with this program which only proves that if she was any stupider she’d need to be watered twice a week.
Or governments can raise the retirement age and push obligations into the bell curve of death. This I think is a no-brainer. It’s going to happen for mathematical reasons alone.
Of course there is the Krugmanesque route which involves fighting off some aliens or more likely starting a war. This suggestion in the realm of stupid runs three grades: stupid, unbelievably stupid, and war. It’s certainly possible given the clutch of “leaders” on offer, though I do wonder about the appetite for war coupled with ageing populations.
As I see it, there are no easy options for these knuckle-draggers. None. Default is inevitable. It will be the citizens who pay the price. The only question is….
Will the demographic headwind on its way affect the sovereign bond market?
Investing and protecting our capital in a world which is enjoying the most severe distortions of any period in mans recorded history means that a different approach is required. And traditional portfolio management fails miserably to accomplish this.
And so our goal here is simple: protecting the majority of our wealth from the inevitable consequences of absurdity, while finding the most asymmetric investment opportunities for our capital. Ironically, such opportunities are a result of the actions which have landed the world in such trouble to begin with.
“Demographics is destiny.” – Arther Kemp (author)