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What Follows Prosperity: Financial Advisors' Daily Digest

Dice with pencil on graph paper

By SA For FAs :

The current period, and in particular the past nine years' roaring bull market, has not been devoid of hope, aspirations, optimism and genuine progress. And yet these positive qualities pervaded the decade of the 1920s as well - until the bubble burst, leading to a depression so severe that the good times preceding them were hardly remembered; in practical terms, it was the Depression that formed cultural mores and conservative habits of the generation, not the casual exuberance of the Roaring Twenties.

That today's exuberance will eventually give way to something severe is by no means assured - it will give way to something, of course - but it is an inference that I have tended to make on the basis of current trends, and I've seen no better exhibit for this than Rob Marstrand's " A Snapshot of the State of the World (in Charts) " on today's Seeking Alpha.

Marstrand has filtered a lot of noise to find the key trends that he regards as the true signal. Despite my generally optimistic disposition, I believe he is right on in the data he selects and in his brief analyses. Here's one excerpt:

Marstrand considers numerous subjects other than debt, and in my judgment, the first issue he discusses is the most significant, and that is "rapidly slowing population growth and rapidly increasing population aging." One obvious consequence of this trend is that the proportion of workers supporting retirees is dwindling; the most ominous chart he includes shows the 65 and older crowd rocketing up over the next three years to something like a 55% share of the population of developed economies. You don't need to be a mathematician to reckon that that simply can't work under our current arrangement, unless workers' wages are to be confiscated or retiree benefits are to be vaporized.

In my view, a key underlying theme of his various charts (which also include evidence of deflation; the rise of cryptocurrencies; and declining labor participation) is a decline in cultural self-confidence. The low fertility rates plaguing developed economies are no mystery. Demographers have explained the trend as a product of affluent societies seeking "the good life," which is understood as a desire to be freed of the restrictions of raising children in order to consume more and travel more. But you don't need to be a demographer to understand that a society that doesn't reproduce itself will experience the pains and strains of shrinking.

The most obvious strategy to avoid these difficulties is to bring in immigrants. That fact that developed societies are not eager to do so today may also strongly reflect a lack of cultural self-confidence. The two trends are related: A society that is in building mode knows that immigrants will acculturate because they want a share in what is being built; but in a society that is more focused on personal pursuits there is less of a basis for acculturation; it's each his own.

And so it seems that the economic trends we're seeing are, in lesser or greater measure, an unraveling of the binding socioeconomic ties characteristic of long periods of prosperity. Knowing and planning for the recurrence of this historical pattern can only help set your expectations - and allocations. And eventually, even policy makers will get in on the act.

Please share your thoughts in our comments section. Meanwhile, below please find links to other advisor-related content on today's Seeking Alpha. Also, Seeking Alpha has added podcasts to its repertoire -from me and others; for a weekly "best of" digest, follow SA Multimedia ; you can also follow my feed on iTunes .

See also USD/CAD - Canadian Dollar Drifting Ahead Of CPI, Retail Sales on seekingalpha.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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