Second Half Outlook Breakdown – Part Four: Demographics

Join Chris Perras for Part 4 of our deep dive into Oak Harvests’s 2nd Half Market Outlook! In this episode, we cover how the common wisdom about the demographics of the United States may not be accurate, and what means for investors.

Chris Perras: Hey, happy Friday. I’m Chris Perras, chief investment officer at Oak Harvest Financial Group. We are an investment management and financial advisor here in Houston, Texas. Welcome to our July 16th Stock Talk podcast: Keeping You Connected to Your Money. Last week was the third installment of our multi-part series on our second half 2021 outlook.

This forecast is being broken down into multiple segments with each segment trying to address a different topic currently on investors’ minds. Well, the fourth part of this series is titled, Demographics, You’re Being Lied To, and what that means to investors. I’ve loosely covered this topic three to four times since the COVID outbreak hit in March of 2020 last year. I first took up this topic in April of 2020, calling for pent-up demand from housing and autos, backed up by millennials.

Well, this was in the midst of calls for The Great Depression round two and deflationary spirals. I then addressed this topic once again, in May of last year, how did we come to that conclusion while the vast majority of strategists and economists were still hunkered down in fear of a replay of the Spanish flu pandemic of 1918? Well, we did the historic research and looked into what exactly happened to the economy and the markets over the next one, three, and five years after the Spanish flu in 1918.

Of course, what we found out is that after the horrific and tragic event on a global scene America, and more specifically younger Americans in their household formation years, carried on at an accelerated pace of their lives. Now, doesn’t this sound a lot familiar, like the last 12 to 15 months? Why is it titled Demographics, You’re Being Lied To? Well, because the statistics don’t lie. What exactly do I mean?

Listeners, I ask you, how many times have you heard some strategist, analyst, or economist the past 5 to 10 years come on TV and recommend some stock or sector and follow it up with this point, this reason for their pitch. We are graying as Americans. We’re getting older. Well, not to play Mr. Obvious, this is 100% true on an individual basis. I am a day older than I was yesterday, as are you, as is my dad, and everyone else in my family and your family. Herein is the lie, misinformation and plain ignorance propagated by those on TV. Our country is really not aging anymore. Even pre-COVID crisis the past 15 months, it hasn’t been aging really for the past 10 years.

What do I mean? After rising steadily throughout the 1970s, from about 28 years average age through 2010, when it reached 37.2, the median age of the US population has held relatively stagnant the past 10 years between about 37.3 and 38.5 years old in 2019, when the data was last available. What was the cause for this steady increase in the aging of America for 40 years from the 1970s through around 2010, and what caused its peak 10 years ago at the 37.5 to 38 years age range?

Well, that was the generation of the baby boomers. Yes, you see the baby boomer generation and older, which now accounts for somewhere between 75% and 78% of all household wealth in the United States, well, their numbers peaked on an absolute basis back around 1999, according to data provided by the Pew Research Institute. More importantly for financial markets and those interested in divining secular tailwind trends for investing, starting in or around the Great Financial Crisis, call it 2008 through 2010, the number of baby boomers exiting the workforce started accelerating and the now largest generation as measured by population in the US, that’s the millennials, started accelerating as a percentage of labor force.

Well, in doing so, while later to the household formation party than prior generations, millennials too, started to accelerate the phase of the household formation phase of their lives when they headed into the workforce. Listeners, like it or not, the millennials and their younger cohorts, Generation Z, are driving most, if not all of the secular trends that are tailwinds for our financial markets.

Listeners, there are now almost 170 million millennials and Gen Z-ers in America, and the ranks are growing, both in absolute and percentage terms. One of the unspoken fallouts from the last 15 months of the COVID pandemic is that for the first time in decades, the average life expectancy in America dropped by a full year in 2020. Yes, the average life expectancy for an American dropped from about 78.8 years to 77.8 years from 2019 through 2020, despite advances in medicine that have, for decades, advanced the aging of the American theme.

Pointing these things out, I’m not trying to sound like a downer to a lot of my listeners who are retirees or thinking about retiring. My goal is to point out that one, there is little to no accountability for what is said on TV financial news channels by “contributors”, which is really code for, “I’m being paid by the TV channel.” Two, subscription newsletter services, which are unregulated and can say literally anything they want. Three, and probably most importantly, we try to take these secular trends into consideration when tilting your portfolios.

Going back to prior podcasts and examples. I’m 55 years old and growing up, I thought the bank ATM machine was magic. I mean it dispensed cash at a moment’s notice, and I didn’t have to wait in a long boring line in a bank anymore. That was magic. A cash machine. Fast forward 20, 25 years, and that ATM machine is going the way of Blockbuster Video over time. Why? Because over time, more and more of our transactions are going digital. Those are credit and debit transaction. They are Venmo transactions, they’re Cash App or wire transfer money movements. They’re you snapping a picture of a check on your smartphone and having it directly deposited into your bank account transactions.

As those services become more pervasive with younger generations, the older analog technologies that advanced our earlier lives get pushed to the side. Technology and its advancement made possible by the way of the semiconductor industry, miniaturizes tasks and services, and makes them more efficient and productive to our overall society. As an investor, I may not like any or all of these advancements, and I may not adapt any or all of these investments, or use any of them, but that isn’t what is key.

The key is to think about what is the secular tailwind or headwind that these changes might produce. I guess, to put it more directly, instead of thinking WWWBD, which stands for what would Warren Buffet do? The better question might be WWMKD or WWMGKD, which is what would my kids do, or what will my grandkids do?

It’s the summer, and as far as the team at Oak Harvest is concerned, so far, it’s a very normal one at that. Almost no one says to me, “Chris, I want more volatility in my portfolio or my life.” However, almost everyone I know says, “After the volatility storm has subsided, I wish I had bought more of this or that stock.” It’s always easy, and with perfect hindsight, when it’s far behind us.

Listeners, it’s still a bull market and rotations happen throughout bull markets, particularly during the summer months. Oak Harvest, we’re a comprehensive wealth management financial planning advisor located right here in Houston, Texas. Give us a call to speak to an advisor at 281-822-1350. We’re here to help you craft a financial plan that is independent of the volatility of the stock markets. I’m Chris Perras, have a great weekend.

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