The New-Normal Class Warfare: Old Vs Young?

Tyler Durden's picture

While the most commonly held perspective on the aging demographic in the US is a retiring Boomer generation that is increasingly risk-averse (rotating to fixed income) and in desperate need of a growing segment of the healthcare pie, it appears that this may not be the entire picture. The data shows, via UBS Larry Hatheway, that in fact asset preferences do not change much by age cohort and therefore is not the driving reason behind a secular rotation out of stocks per se (as opposed to more simple reasons such as mistrust) and more notably the perception of an increased longevity could actually incentivize older investors to extend investment horizons (whether in stocks or fixed income). There does, however, remain a clear correlation (intuitive rather than causal if one is splitting hairs) between equity valuations (P/E ratios) and the older cohort (implying expectations of dropping equity valuations). Critically though, it appears from the data that older investors are not more risk averse. There is one further issue that is quietly emerging and that is US fertility data which points to an 'eventual' rejuvenation of US society - which could eventually shift the demographic influence back in the opposite direction. The simple take-away is that while old people continue to desperately cling to wealth preservation in their longer-than-expected lives, with their notably higher-than-average net worths, there will be an increasing pressure to stealthily tax part the aged of their wealth to cover the costs of a growing and even more state-dependent youth demographic that is emerging. Forget the 99% versus the 1%, it appears the new and more clearly-defined class warfare could well be the old versus the young.

 

There remains a clear correlation between the older cohort of the population and equity valuations (P/E ratios) suggesting a falling equity valuation regime is currently occurring...

 

"Income tends to be correlated with equity returns, so that in periods of high equity volatility the uncertainty of future income also increases. Taking this into account suggests that working investors should hedge their income volatility by shorting rather than buying equities."

But as opposed to conventional wisdom, it appears the older cohort is more more risk averse as they hold on to their investments on perceptions of increased life-expectancy dominating patterns perhaps...

 

But the fertility rate continues to rise - outpacing the older cohort even with its increased life-expectancy - putting inevitable pressure on the state to cover more-dependent younger cohorts over time...

 

and where to get that much-needed additional funding to cover the costs of the younger demographic? Well, the older cohort dominates net worth and seems the most obvious place to start...

 

As UBS summarizes, although much discussion of US demographics is drawn to the ageing of the baby boomers, that focus ignores another important fact about US population dynamics. Specifically, the US fertility rate (defined as the number of children per woman) has been rising steadily for three decades and is now above 2. That suggests that the conventional wisdom of an America growing ever older may not be right, at least at more distant horizons. The demographic hump of baby boomers will move into the tail of the age distribution and the distortion created by the post-war spike in fertility rates will fade. In short, demographic change, as important as it may be, could also prove to be transitory as longer-run factors determining population growth change.

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GeorgeHayduke's picture

That couple better hope they stay healthy. The kids will choose the nursing home. They better hope it's not the Under The Bridge nursing home.

However, I expect nothing less than that couple's attitude of "It's Mine, Screw You" from many, many Baby Boomers, because I'm a '61 boomer and I've grown up with them and know how they are. They define words like: avarice, selfish, greedy, self-centered, self--absorbed, self-serving, spoiled, etc... I can't stand a whole lot of them myself and I can understand why younger generations would hate them too.

That couple may want to spend that money before the younger generation takes power or they might find their cruise fund has been confiscated. Karma can suck sometimes, especially when you've been an asshole.

WestVillageIdiot's picture

I have seen what inheritance can do to some of the spoled brat heirs.  Maybe it is better that the people spend it before their demon seed children get it. 

GeorgeHayduke's picture

I agree with your statement. A large number of Boomers inherited their wealth and look what happened to them.Although, I would claim it's an individual thing. Some folks probably do quite well with a large inheritance and aren't jerks about it.

Hell, I know a Boomer who inherited a nice sum from her dad's estate when he died, yet was pissed that she didn't get more. She plans on spending it all too and feels no need at all to give any to her kids or leave them anything. Yeah, she's pretty much a bitch that few people can stand being around.

machinegear's picture

As "gen Xer" I told my parents to enjoy their new houses because because once they get too old for them, its either the nursing home or the river.

This heartfelt commentary brought to you by a bitter Xer. Good day.

Lednbrass's picture

Yep. I told my Dad he is getting dressed in a polyester golfing outfit, wheeled into the nearest Mall, and left there. He spent his life pursuing personal fulfillment and enjoyment and thats fine, but he needed to be corrected on his expectation that he was going to be cared for one day at the expense of his kids and grandkids.

Zero Debt's picture

With the yutes swabbing the deck

WestVillageIdiot's picture

"What's a yute?"

And next time you post here I want you dressed appropriately.

Peter Pan's picture

The kids have already been screwed. But what goes round comes round.

tabasco71's picture

I was shocked in my business school when the finance professor (a 70yr old bostonian) described how he had stuck two thumbs up to a new fangled financial product (I think it was derivatives) which could be used to shift the debt that he was due to pay today onto the people to pay tomorrow.  This was in 2003, so he must have been talking about when he was in business 20-30 years before that. So, given his attitude, I'm holding no moral high ground about taxing that mofo out of his second condo and boat in order to give myself a chance.

However, things like inheritance tax are really designed to do just that - as an inheritor, you feel wrong done by when the government steals half of your deceased parents estate - perhaps they are actually only balancing the books... 

SoNH80's picture

Message to the older set:  don't expect any young people to buy your house for 10X what you paid for it, at least not within the next 20 years.  If you're lucky, some trust fund kidz might do it.

j.tennquist's picture

Screw them before they can screw us?  Sure we f*cked them up financially, that's for certain. 

They are going to do far worse to us.    It's gonna get physical and it's going to be ugly.

riphowardkatz's picture

Will the old want to force the young to pay for their mistakes? Will the young accept being forced to pay for the old people's mistakes?

Almost a guarantee the old people feel they are entitled to what they have not earned or lost so it comes down to the question will the young accept being forced to pay. I think they will but the resentment will run high and apathy and productivity and wealth generations will suffer.

 

 

SheepDog-One's picture

Old people cant street fight very well.

WestVillageIdiot's picture

Maybe not but they sure can act like bullies.

AARP for everybody!

kridkrid's picture

This won't last that long.  I drive by a VA hospital every morning.  As I did today, I thought about what it's going to look like when those cuts get made.  The next 3-4 years (or until the whole thing completely unravels) is going to be a non-stop parade of "We can't turn our backs on XXXXX, we made a commitment to them and we have to see the commitment through".  Get in line... old people, vets, federal pension holders, public service pension holders, school teachers... name it.  If you aren't on that list, you'll be let go and will receive an ever dwindling amount of unemployment.  If aren't let go, your taxes are going to skyrocket.  None of this is avoidable.  It’s baked into the system.

WestVillageIdiot's picture

The granddaddy of them all is The Government Bubble.  Its popping is already taking place under the guise of "austerity".

kridkrid's picture

Every bubble is a symptom, not a cause.  The cause is credit money that is loaned into existence with interest attached at its creation.  The gov't bubble may, in fact, be the final bubble.

riphowardkatz's picture

It can last a lot longer. You take all the wealth that exists, you take the productive capacity of the US which is dwindling but still enormous and there is a lot more wealth to redistribute and consume. Again the question is will the people getting that wealth be the ones who lost it through voting in corrupt politicians who would play along with their philosophy of statist wealth redistribution or wll the wealth be kept by the people producing it.

Unfortunately they dominate philosophy of todays world (altruism) suggests that the old people will be consuming the wealth generated by younger generations and using the guns of government to have it redistributed to them.

 

shuckster's picture

It's a simple question of enforcement. If the old folks want to bark out orders, they're going to need someone to enforce it

Peter Pan's picture

We still have some demographic distance to cover before the younger generation's numbers start to pick up. In the meantime, fewer and fewer young workers per retired person will be the norm. Try coping with that.

In addition to the above problem, the older generation are pretty much gutted by ZIRP and poorly performing stock markets as well as the fact that virtually all income increases in the economy (about 93%) are accruing to the top 1%.

Finally, when the young are starting life with sizeable college debt and poor job and income prospects, there is going to be a further disconnect between the old and young as they will find it difficult to pay off education debt, start a family and also pay off a mortgage.

Demograhics, income, jobs and debt are all out of kilter. Good luck trying to navigate such a swamp. 

WestVillageIdiot's picture

Retirees shouldn't be in the stock market.  That is too much risk on a short timeframe.  But you are right about ZIRP.

WoodMizer's picture

Right, they should be in the safety of sovereign debt and currencies.
Long PMs is the only safe play left at this point.

machinegear's picture

For many young, it boils down to a decision to be free without debit or to become a debt slave with kids.

GeorgeHayduke's picture

Of course they will use this divide and conquer tactic. It will likely work well too as most folks will look at the "enemy" their controllers point towards rather than look and think for themselves.

francis_sawyer's picture

+1

Look at all these friggin' comments... Almost all of them have immediate sides being taken (us vs. them)...

It's the 99.9% ers vs. the .01%'ers people... FOCUS!

CvlDobd's picture

I think it's freedom v. oppression. Your middle class neighbor could be just as much an enemy as a .01%er if they support big government police state tactics.

As William Wallace said "FREEDOM!!!!!"

WestVillageIdiot's picture

Do you believe in freedom and responsibility or BIG Government?  That is the question.  

francis_sawyer's picture

There are no 'numbers' in the middle...

A person aspires to be one or another... The lines are drawn at the gate, you're either IN or OUT... There is not on genuine 1%er on Zero Hedge... Everyone is a 99%er (except for Max Fischer, who is a 'wannabee' 1%er & thus gets his a55 kicked on a daily basis)...

DOT's picture

I prefer the old In and Out.   Hmmmmmm... but that's where all these damn kids came from.

(btw: 99% is just a meme, as a class of citizens it does not exist.)

 

All the false divisions having no actuallity are subject to disagreement and debate ad infinatum.

All your life you have been lied to by those that seek to control you.  Those liars use any tool available to make you HATE.

 

 

francis_sawyer's picture

Your last sentence summed it up in a better way that I fumbled about trying to express... (+1)

onthesquare's picture

Over the centuries families like the Rothschilds have made sure they keep the money building from generation to generation and their kids do not marry outside 2nd cousins.  Through one generation to the next those incharge of the wealth are committed to make it grow, either by hook or by crook. 

Us oxydental european and asian descendies buy stuff of little long term value and when it is gone it is gone.

Without a serious change in inheritted drive and additude getting into that 0.1% is not going to be possible.

 

toady's picture

Agreed.

This young vs old is certainly contrived, but the differences are acute.

Older people, ones that were in the workforce pre Reagan, were indoctrinated in the job-for-life, full benefits, good pension America.

The middle of this issue is mixed, some got into job-for-life, others got into 'deregulated' industries, like me, and saw every benefit outside of a paycheck slowly taken away.

Those that are even younger are so indoctrinated on the other side it's hard for me to imagine. The word 'pension' is evil. The word 'healthcare' is evil. Work till you die is assumed.

Why can't people see that we have the corporations over a barrel? If they want us to purchase their products, they must provide benefits outside of just a paycheck.

Until younger generations reverse the Reagan revolution they, actually WE, will continue to decline.

Rant complete!

GeorgeHayduke's picture

+1

I agree completely.

In this post-Reagan word, work and conspicuous consumption are the only virtues that matter. Screwing over anyone else: neighbor, family, community, country; is fine as long as you come out ahead. This greed and avarice have always been inherent in America as those were the types of people who came to power here and made laws to suit their own greedy nature. However, it is looking like this scam may have finally run its course and a new model may begin and that model may not suit the scammers too well. We will see.

Badabing's picture

Divide and conquer the goyem

Will To Live's picture

In ten minutes this thread is lord of the flies. The real thing will be brutal.

kridkrid's picture

This is certainly correct, and I'm even a bit guilty of it above when I say that they tacitly approved what has been created.  But in reality, they likely had no idea what was going on... still don't.  So it goes.

riphowardkatz's picture

You are way off base. The cause of the division is philosophy not some powers that be group you made up in your head. 

The cause is the philosophy of altruism whose tenants are carried out by the state. When you have this philosophy a finite pie must be divided. when a finite pie is divided the inevitable result is group mentality and fighting amongst groups for their slice.

If you we had capitalism the pie would be growing and being saved. There would be no need for fighting only for competition which grows the pie for everyone.

 

Seasmoke's picture

Even though I always liked Bill Cosby, I guess old black guys will be my enemy then

ACP's picture

I guess we'll see if Dr Evil, er, Bernanke can break graph #1.

WoodMizer's picture

To bad all the "wealth" held by the boomers will be Corzined before most boomers have a chance to invest in physical assets. The old will blame the youth for the capital losses and government spending. Violent unrest of the youth will support the boomer argument, but the youth will write the history after the boomers meet their fate.

SheepDog-One's picture

Right. Old folks actually think their 'wealth' will not soon be Corzined? Theyre dreaming. 

ACP's picture

And who the fuck leaked ISM? Are there 2 tier leaks now? One for super-high rollers days in advance and one for the run-of the mill Wall St punks minutes in advance?

Edit: Ah, didn't realize you can buy non-public info 3 minutes in advance.

Mercury's picture

-->...the perception of an increased longevity could actually incentivize older investors to extend investment horizons

...or to preserve/hide their wealth from those who seek to vote it away.

-->There is one further issue that is quietly emerging and that is US fertility data which points to an 'eventual' rejuvenation of US society - which could eventually shift the demographic influence back in the opposite direction. The simple take-away is that while old people continue to desperately cling to wealth preservation in their longer-than-expected lives, with their notably higher-than-average net worths, there will be an increasing pressure to stealthily tax part the aged of their wealth to cover the costs of a growing and even more state-dependent youth demographic that is emerging.

So, the emerging, younger generation is going to grow the economy out of the doldrums by...taxing away the wealth of retired baby boomers to fund even more entitlements for those members of society with the highest productivity potential?  Doesn't sound rejuvenating to me. You also might want to take a gander at exactly which segments of the population are generating those above replacement level birthrates.

-->In short, demographic change, as important as it may be, could also prove to be transitory

 Wow really?  Thanks UBS...take the immortality assumption out of the model. Got it.

Ignorance is bliss's picture

Interesting....So what demographic is showing increased population gowth? According to the census Latinos are the growing force. I am not sure how this will effect the baby boomers. We are going to have to a make a choice. Make war or take care of our elderly. We can't support this huge budget and care for our elderly. TPTB are trying to convince us that SS, Medicare, Medicaid, and other social safety nets should be gutted. Maybe...or maybe we cut back on the drones, military war machines, homeland defense, excessive Gov't expenditures such as massive Gov't projects. At the end of the day those expenses will be cut when U.S. bonds reach junk status.

 

report by the U.S. Census Bureau projects a decrease in the ratio of Whites between 2010 and 2050, from 79.5% to 74.0%.[54] At the same time, Non-Hispanic Whites are projected to no longer make up the majority of the population by 2042, but will remain the largest single race. In 2050 they will compose 46.3% of the population. Non-Hispanic whites made up 85% of the population in 1960.[55] The report foresees the Hispanic or Latino population rising from 16% today to 30% by 2050, the African American percentage barely rising from 12.9% to 13.0%, and Asian Americans upping their 4.6% share to 7.8%. The U.S. has 310 million people as of October 2010, and is projected to reach 400 million by 2039 and 439 million in 2050.[20][56][57][58] It is further projected that 82% of the increase in population from 2005 to 2050 will be due to immigrants and their children.[59]

 

 

SoNH80's picture

Latins have one huge thing going for them- they take care of their families.  Even in poor Spanish neighborhoods around here, the little kids are well-dressed, scrubbed clean, and their teen moms keep an eagle eye on them.  Oldsters hang out together playing dominoes and going to church, not warehoused in some nursing home.  Meantime, a lot of the poor white kids are dirty, disheveled, and left alone to wander around at will.  White oldsters warehoused in public housing.

lead salad's picture

The young will win the war as the old will be used for Soylent Green.

Putty's picture

Yup.  The elderly's children won't be on their side.  They will want to eat as well.

toady's picture

You don't want that old, tough, dried-out soylent. We have some juicy veal soylent right over here...