Jefferies analysts on Monday resurfaced an age-old economic theory that the upcoming wave of baby boomer retirements could trigger a concerted effort to monetize their holdings.
According to this theory, such a massive outflow could allow ** to last for several years in the "dark times" until the younger generation has saved enough money to start buying back the assets of their grandparents.
But Sean Darby, a global strategist at Jefferies, said the generational shift doesn't necessarily mean that the next 10 years will be mediocre, as foreign investors will fill the gap.
"One of the main reasons investors shouldn't be pessimistic about forced retirement plans is that foreign investors' holdings of U.S. ** are climbing," Darby wrote in a note to clients on Tuesday. ”
With the deregulation of capital controls, the growth of assets under sovereign wealth** has led to a clear global shift among investors**.
What's more, it's uncertain whether baby boomers will sell** and be more conservative about retirees becoming longer than ever before. But there's no denying that baby boomers are going to be a market force, it's just not certain how they're going to affect the market.
According to the Bureau of Labor Statistics, workers over the age of 55 now account for nearly a record 24 percent of all employees in the United States.
In 2011, the Federal Reserve Bank of San Francisco conducted a similar study on this theory, which raised eyebrows and was cited by Darby.
The study found that U.S. values are related to the age distribution of the population. The conclusion is that this relationship means that the stock price will likely be going to be until 2025, until millennials start buying back what their parents and grandparents abandoned.
Population dependency ratio vs. ......and the price-to-earnings ratio of the United States**, there is a close correlation. Federal Reserve researchers Zheng Liu and Mark Spiegel wrote, "Considering that people born during baby boomers are retiring in the next 20 years, this correlation bodes well for the poor value movement." ”
"Market participants may anticipate** underperformance in the future, and this expectation could depress current share prices," they wrote. ”
But Jefferies believes that in addition to the potential growth of foreign investment, investors' concerns about a 10-year downturn are overblown.
Darby noted that a 2006 report by the U.S. Government Accountability Office showed that macroeconomic and financial factors largely explained the change in returns between 1948 and 2004, although the age of the population changed over the 56-year period.
Importantly, a 2006 U.S. Accountability Office study showed that baby boomers are less likely to have financial assets after retirement, resulting in a sudden substantiality. Jefferies strategists wrote.
Conversely, an increase in life expectancy could smooth out retirees' asset sell-off and extend it for a longer period of time, while many may choose to continue working beyond the traditional retirement age, Darby added.