Right now, the pool of people putting money into the market has been steadily increasing as Millenials enter the workforce. Boomers are retiring, but not really in large numbers yet, so the overall number of folks saving for retirement has been continually increasing since Boomers started entering their prime earning years in the early 1980s.
However, the peak of the Boomer years will soon start entering retirement soon (~2020) while the early Boomers are starting to die off. And the generation after Millenials - who will start comprising the workforce in 2020 - is much smaller than the Millenial generation. There are fundamental issues with demographics that can't be papered over by financial engineering: a smaller working-age population supporting a larger dependent population (absent massive technological advancement in care) = lower standard of living for everyone.
Demographically, this would play out as a generation-long bear market, but markets tend to correct as soon as everyone adjusts their expectations for the future. That implies a sudden and massive crisis at some point with stock market levels correcting to the yields and prices of the 1970s, adjusted for inflation. That would imply an S&P 500 of about 370 (down ~95%) and interest rates in the 10% range.
On average, assuming nothing else changes. In reality, we have the levers of immigration and workforce utilization (e.g. making it easier for ex-felons or non-violent drug convicts to re-enter the workforce) to juice labour inputs. And we have education and R&D to juice productivity. On top of that are random factors like natural resource utilization, falling energy and material intensities of GDP, et cetera.
> That would imply an S&P 500 of about 370 (down ~95%) and interest rates in the 10% range
One cannot so neatly connect demographics to interest rates, let alone the S&P 500. Demographics map to certain consumption sectors (e.g. durables) very well. They map to others (e.g. luxury or entertainment products) quite badly.
To illustrate one of the many confounding variables between demographics and stock prices, consider what a small shift in asset allocations in a single generation from real estate to equities would do to prices.
However, I agree with JumpCrisscross (https://news.ycombinator.com/item?id=18763124) that such a horrific scenario is unlikely.
What would reverse this, internationally, is if the high-youth countries of Latin America, the Middle East, sub-Saharan Africa, and rural India could be rapidly integrated into the global economy. There are large political, cultural, and educational barriers to this, though.
Boomers were born 1945-1960, meaning in 2020 they'll be 60-75. They started retiring long ago.
This describes Japan for the past decade or so, right?
Also, are you saying the standard of living would regress back to the 90's/80's/etc., or that growth in the standard of living would be curtailed significantly?
However, sectors where productivity hasn't risen that fast - like health care, elder care, mental health services, natural resources, etc. - will encounter sharply rising prices as there are too few workers to provide services to everyone who needs them. The market is a way of allocating resources to those who are willing to pay the most - so those with resources will still be able to afford them, but will end up liquidating a lot of their investments for it, while those without assets will just have to go without. In the process, the exodus of cash from financial markets to health & elder care will drag down asset prices in general. It'll be a good time to put money into the market, but a bad time to have money already in it.
You're saying that the rate of growth in the standard of living would be curtailed, and that the degree of curtailment would be sector dependent? If so, then I definitely agree.
Realize it doesn't meet the true technical definition, but more the idea of passing the buck (so to speak) and someone getting hit pretty hard, in an inevitable / unavoidable sorta way. Also, because this also (to me) feels less like investing and more like a timing game.
But you can balance a boat and keep it from tipping over that way.
THIS. This is how it works. They also have similar basis prices for their positions, and similar pain thresholds. It's not a big surprise that when Institution XYZ reaches its' pain threshold and stop loss orders are used, a few more dozen Institution ABC, DEF, and GHI hit theirs also! This looks like a "huge selloff" on a chart, but it's just the same event being experienced by multiple institutions near the same point in time.
tldr: it looks like a herd because it is a herd.
Passive funds have no pain thresholds which force them to sell. Investors in them may. But that’s a difference in how individual investors’ risk tolerances are abstracted to broad market pricing, not a change in those risk expressions themselves.
edit: Sometimes I'm blinded by the part of "market" I operate within, which is the commodity futures market. I could be(and likely am) completely wrong when you apply this to the securities market, which I am less familiar with.
Human behavior (even human-programmed behavior) is pro-cyclic. Everyone wants the same stuff and makes the same decisions with the same input. I don't see anything notable about this market cycle as compared with previous ones at all, only the jargon is changing.
Twenty years ago was 1998. Ten years before that, Black Monday was faster and more vicious than anything we've seen since. It remains "the largest one-day percentage decline in the DJIA" [1].
Pretty sure that was exactly my point. I'm sure someone finds the behavior "interesting", but if the same thing is happening for the same reason, I'm arguing those details that everyone finds "interesting" aren't "important".
That's voodoo thinking. "OK, all those other times everyone was wrong about this. But this time we have new jargon, so we can figure it out!"
Nothing in the linked article (or anywhere else) gives you the magic you want. This is just a new way of explaining long-settled ideas.
This is like trying to debug a linked list bug via disassembly. "OK, fine, it was a bug before on x86, but look, now it's compiled for RISC-V and uses entirely different register schemes, so this time it will work!"
That's not how any of this works. Every share bought is a share sold by some counterparty. Buyers and sellers are always in equilibrium.
To explain it a step further... at this moment in time, every private and institutional investors stopped selling APPL...I can still buy a share, likely thousands of them... from the market participants that are always there: market makers. When you make a "bad call"(like selling into a rally), a market maker is likely on the other end of your trade, and they will profit from your "bad call". Now the inverse also applies, often times a market maker is taking the other end of your trade that is a good(profitable) trade for you. The market maker isn't losing though, they are just playing the odds. They are convicted that for every losing trade they take out of obligation(as a market maker), they are going to take 2 or more winning trades. They also operate with trade costs much lower than you or I(ie retail investors) have access to.
That was more reply than I originally intended to write...but you have to understand this(or fail at profitable trading). There is no equilibrium, and there are parties(market makers) ensuring that there never will be. That is their job, to create a state of constant liquidity, even if buyers and/or sellers individually are unwilling to play.
Your understanding is exactly backwards. Market makers provide the "magical equilibrium" by bridging supply and demand across time.
> and if there was, there would be no profit.
Wrong again. Even with infinite shares on the bid/ask, there's still a spread for market makers to collect.
More generally, what exactly do you think your comment proves? If a retail investor buys the sole 100 shares at top-of-book, the price (mid) moves up, but there's one buyer and one seller. Where's the "delta"? And if a big hedge fund buys 100,000 shares from 10 market makers... 100,000 shares demanded and 100,000 shares supplied. Magic!
You're arguing against an accounting identity. I know what you're trying to say: what moves prices is relative eagerness of buyers and sellers. You're just too inexperienced to be able to explain it.
When passive funds as a group have net outflows, all their holdings must be reduced in roughly the same proportion. But passive funds as a group cannot reduce their holdings by selling stocks to each other! It's impossible to take water out of a boat by scooping water from one spot and pouring it back into the same boat in some other spot!
Therefore, to reduce holdings, passive funds (or their broker-dealers) necessarily must find other -- i.e., non-passive -- buyers willing to take those stocks at some market-clearing price. Alas, everyone else, in the aggregate, also owns the same stocks in the same proportion.
Potentially, this can produce temporary imbalances between passive net sellers and non-passive net buyers that get corrected via declines in price. Passive net sellers, being price agnostic, do not care; they're on automatic.