Business & Investment

What really drives the stock market? — Demographics

Let me ask you a question. Do you think inventory will increase in the long run?


Is that because you were told by a financial institution? Because it was always true?

Does that seem like a good explanation to you? Is it enough to bet your financial future?

If you are always worried about those questions, today Daily Reckoning Australia For you If you haven’t been worried before, it will soon be. Because you need to.

I think the stock markets in developed countries are likely to be bear markets indefinitely.. I’m talking about the steady downtrend of stocks for the rest of your life.

Probably interrupted by one or two crashes. Of course, the bear market occasionally bounces back.

If it sounds ridiculous, keep in mind that it is considered perfectly normal in the country I’m writing this. After all, that happened here. The stock market has fallen about 27% in the last 32 years …

and it is rear Almost 400% bear market rebound since 2009 …

Tell Japanese tax accountants that Westerners believe that stocks will rise in the long run. Then you will have a confused look. Or sad ones. Neighbor committed suicide due to her stock market loss …

If you agree with my predictions about the demographic ruin of the stock market, does that mean you should close your brokerage account and run towards the hills?

No, that means you need to be more careful about which stock you invest in. The wide variety of strategies to maintain the entire index is, in my view, at risk of problems.

So let’s dig into why I’m making these bold claims …

How to survive Australia’s biggest recession in 90 years. Download the free report to learn more.

The real reason the stock market moves

What if no investment is made In essence Will it go up in the long run? What if there is a very specific reason why this seems to be true only in the past?

The reason why it ends for the first time in human history and reverses. With one exception, demographic changes are already occurring in developed countries.

Where I provided the exact stock market returns I’m predicting — an indefinite bear market interrupted by crashes and bounces.

Unlike my companion in the “stock market rises in the long run” camp, I can explain exactly to you why Stocks move as they do. There are no mantras or subtle explanations about the past. Or the theory of returns and risk premiums.

My forecast is based on simple fractions or ratios that explain the stock market boom and bust. It makes the stock market predictable using mathematics set decades ago. But most importantly, my method is an incredibly simple way to analyze the only true determinants of stock prices. That is common sense. And it takes precedence over all other considerations.

Today, I would like you to understand the intuitive nature of my claim with a brief explanation.

Let’s start with the basics …

Stock price is determined by supply and demand

Shocking, I know.

However, the idea that investment prices, like all other prices, are determined by supply and demand is heretical in financial markets. Financial advisors explain the intrinsic value and provide a chart of endless profits over time.

They talk about an efficient market for pricing assets correctly based on the risk premium. (The greater the risk, the greater the return.)

Or explain how dividends and returns compared to interest rates determine the stock price. It’s the version I learned at Goldman Sachs.

However, in the investment world, supply and demand are not mentioned. Instead, the focus is on value. And an estimate that value and price will more or less converge over time.

But I don’t care what they are saying. All prices are determined by supply and demand, not value. Investment is no exception.

That’s all The balance between supply and demand in the equity market will never be disrupted in the coming years... If you prefer to look at the past rather than using logic and reason, which will cloud the problem.

If your inventory is constantly up, why bother to explain? Instead, punt your national pension savings on a hypothetical basis with a compulsory old-age pension.

Now, what if the factors that have guaranteed the market to always rise change for the first time? That could stop the rise in the stock market in the long run.

How demographics control stock market prices

What scholars call the life cycle hypothesis explains how demographics control the stock market over time. Shows what constitutes supply and demand for an investment.

The hypothesis is very simple. Buy an investment in middle age. And sell them when you retire.

This is especially true of the modern financial system. People only put some of their hard-earned money into each Peishek’s financial markets. It happens automatically for most of us.

That is the demand side of things, the investment buyer.

What about supply — an investment seller? Well, that also depends on your age. After retirement, people sell their investments to fund consumption. They want. They are not paying attention to whether the stock market is overvalued. They have an invoice to pay!

In fact, sluggish investment has forced retirees and their pension funds to sell more assets to cover the same living expenses. Simple reality and basic human needs contradict financial theory and its “efficient market”.

Do you know how the overall supply and demand of stocks is determined by the size of the age cohort? The number of middle-aged workers (investment buyers) relative to the number of retirees (investment sellers) determines the supply and demand of investment.

The good news is that demographics are predictable. The number of buyers (demand) and the number of sellers (supply) are easy to calculate and know in advance.

Therefore, you can forecast the supply and demand of inventory. And it allows you to make reasonable forecasts of financial market prices. Their direction, at least over the long term.

Of course, various factors are involved. And this treatise is only retained for a long period of time. But keep in mind that prices are ultimately set by supply and demand.

So what do demographics predict for the supply and demand of investment? Now, you’re hearing about the aging population, right? That means that the amount of sellers of investment is increasing. The important thing is that it is growing faster than the number of buyers. And that’s a bad sign for stock market prices.

When the baby-boomer generation retires, they try to sell their huge investment assets and pay their retirement benefits. But to whom? There are not enough young people to absorb them.

Anyway, that’s my claim. And that is predicted by the decline in the M / O ratio, the ratio of middle-aged and older people. The ratio of investment demand to supply. This means that the supply of investment assets will increase relative to demand, as it will decline in the next few years in developed countries. And that means a lower price.

Stock prices will not rise in the long run.

Until next time,

Nick Hubble Signature

Nikolai Hubble,
Editor, Daily Reckoning Australia Weekend

PS: Learn why the real estate market is unlikely to collapse until 2026 and how to potentially take advantage of this trend. Download the free report now.

What really drives the stock market? — Demographics What really drives the stock market? — Demographics

Back to top button