Writing in Barron’s, Bill Gross of Janus warns of the dire financial consequences of an aging population and suggests some investment implications. Maintaining that “demography rules,” Gross explains: “The U.S. government has currently outstanding debt of approximately $16 trillion or close to 100% of GDP. The present value . . . promised under existing programs totals $66 trillion or another 400% of GDP. . . . We are broke and don’t even know it.”
Responding to politically popular debt rhetoric, he notes, “reducing the growth rate of current government debt does little to help what in essence is a demographic not a financial problem: too few Millennials to take care of too many Boomers.” The “dependency ratio” (retirees to workers) “soars from 0.25 retirees for every worker to 0.35 over the next 10 years.”
Gross highlights a few investment implications:
- Due to the developing world’s younger demographic, “developed nations could and should transfer an increasing percentage of their financial assets to emerging markets to help foot the demographic bills back home,” so over the long-term he advises “think about increasing your asset allocation to the developing world.”
- Based on the probability of higher wages for Millennials, he suggests: “an investor should go long inflation and short fixed coupons,” noting that “a 10-year TIPS at 80 basis points seems like a good hedge.”
- Finally, he observes: “health care should thrive, while liability handcuffed financial corporations such as insurance companies as well as the bonds of underfunded cities and states . . . should not.”
Tagged: Bill Gross, demographics
from Validea's Guru Investor Blog http://ift.tt/1JZYE2p
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