More Inversions

The Treasury yield curve (a graphical representation of Treasury bond yields plotted along an X-axis defined by maturity) has continued making headlines this week.  It has spent a substantial amount of the period “inverted,” to wit, the two-year full faith and credit notes are paying more than ten-year Treasury bonds.  Typically, this is seen as a harbinger of a looming recession.  But there are other inversion developing.

For years Atlas has written about our concerns regarding America’s (and the world’s for that matter) demographic situation.  The Baby Boomer generation ushered in a tremendous period of economic expansion, driven by the population’s rate of change as they were born.  Suddenly there were many babies to clothe, feed, house, and educate.  Then they matured into working age consumers, propelling American output even further.  But now they are inverting the population curve.

The percent of Americans older than 65 is already at record numbers.  In 2014 it was 15 percent.  By 2030 it is expected to reach 21 percent and be on its way to 24 percent by 2060.  In 2035, the number of Americans 65 and older is expected to be greater than those under 18 for the first time ever!  This development is likely to have a profound impact on consumption.  Especially when one considers that the average Baby Boomer has saved just $152,000 and an astounding 45 percent of them have no retirement savings at all!

Is this a strange, sort of upside-down period, or what?  There’s no telling how it all shakes out.  Atlas has our thoughts on various outcomes, but none of them matter when it comes to allocating our managed accounts.  During these times of uncertainty, rules guide our process, allowing us to manage the risk in the portfolio as needed.