The Really Useful Gold Thread

This is OT but it would be interesting to understand how Gold will perform during a prolonged bear market.

McB

A new study of American demographic patterns and the stock market predicts that while the market may rally periodically, its overall direction will be downward until around 2018.

By: Mark Hulbert

A new study of American demographic patterns and the stock market predicts that while the market may rally periodically, its overall direction will be downward until around 2018.
This bearish forecast is based on a model devised by three finance professors - John Geanakoplos of Yale, Michael Magill of the University of Southern California and Martine Quinzii of the University of California, Davis. In a study titled "Demography and the Long-Run Predictability of the Stock Market" ( –id=329840), they report that their model has done a good job of explaining the bull and bear markets of the last century. But its accuracy as a forecasting tool is untested. .

The professors' approach is complex, but it depends on a simple indicator: the ratio of the number of middle-aged people to the number of young adults in the population. When this ratio rises, the overall market's price/earnings ratio will rise, too, the professors predict. When the age ratio declines, as it is expected to do until about 2018, the P/E will also decline. .

Demographics are the most critical factor in determining long-term market trends, they say, because investment behavior largely depends on age-related patterns. Younger adults, from 20 to 39, are generally consumers. Middle-aged people, 40 to 59, tend to invest in stocks. Retirees are more likely to sell stocks than buy them. .

Market performance is strongly affected by the relative numbers of people in each of these three life stages, the professors say. When more people are entering middle age than retiring, for example, the market tends to rise because more people will be buying than selling. If the next generation of investors is smaller, the trend will reverse when the middle-aged investors retire. .

The major influence on American markets over the next two decades will be the aging of the baby boomers, the approximately 79 million people born in the United States from 1945 to 1965. This generation has about 27 million more people than the one that preceded it, and about 10 million more than the one that followed. .

The big difference in the sizes of these generations has already led to wide market swings, the study found. As the first baby boomers approached middle age in 1985 and began investing heavily, their buying more than offset sales by the older generation then entering retirement. Stocks entered a multiyear bull market. .

That trend is reversing, according to the model, which predicts a long decline caused by sales by baby boomers, as they approach retirement, outweighing purchases by the smaller group entering middle age. Assuming that corporate earnings will grow at the same rate as they have over the last two decades, the model predicts that the market, after inflation, will lose more than half its value through 2018. .

But the model also predicts that, starting the following year, such sales will be increasingly offset by purchases by the baby boom "echo" generation, born between 1985 and 2005, as it enters middle age. That bull market should last more than a decade. .

Since the professors began circulating their research as a working paper in August, critics have been skeptical that the model will apply to other periods and countries. But Magill is using it to study Japan, and so far it appears to hold up well. The model suggests that much of the long-running bear market there can be explained by the high ratio of retirees to middle-aged people. Around The Markets

A new study of American demographic patterns and the stock market predicts that while the market may rally periodically, its overall direction will be downward until around 2018. .

This bearish forecast is based on a model devised by three finance professors - John Geanakoplos of Yale, Michael Magill of the University of Southern California and Martine Quinzii of the University of California, Davis. In a study titled "Demography and the Long-Run Predictability of the Stock Market" ( –id=329840), they report that their model has done a good job of explaining the bull and bear markets of the last century. But its accuracy as a forecasting tool is untested. .

The professors' approach is complex, but it depends on a simple indicator: the ratio of the number of middle-aged people to the number of young adults in the population. When this ratio rises, the overall market's price/earnings ratio will rise, too, the professors predict. When the age ratio declines, as it is expected to do until about 2018, the P/E will also decline. .

Demographics are the most critical factor in determining long-term market trends, they say, because investment behavior largely depends on age-related patterns. Younger adults, from 20 to 39, are generally consumers. Middle-aged people, 40 to 59, tend to invest in stocks. Retirees are more likely to sell stocks than buy them. .

Market performance is strongly affected by the relative numbers of people in each of these three life stages, the professors say. When more people are entering middle age than retiring, for example, the market tends to rise because more people will be buying than selling. If the next generation of investors is smaller, the trend will reverse when the middle-aged investors retire. .

The major influence on American markets over the next two decades will be the aging of the baby boomers, the approximately 79 million people born in the United States from 1945 to 1965. This generation has about 27 million more people than the one that preceded it, and about 10 million more than the one that followed. .

The big difference in the sizes of these generations has already led to wide market swings, the study found. As the first baby boomers approached middle age in 1985 and began investing heavily, their buying more than offset sales by the older generation then entering retirement. Stocks entered a multiyear bull market. .

That trend is reversing, according to the model, which predicts a long decline caused by sales by baby boomers, as they approach retirement, outweighing purchases by the smaller group entering middle age. Assuming that corporate earnings will grow at the same rate as they have over the last two decades, the model predicts that the market, after inflation, will lose more than half its value through 2018. .

But the model also predicts that, starting the following year, such sales will be increasingly offset by purchases by the baby boom "echo" generation, born between 1985 and 2005, as it enters middle age. That bull market should last more than a decade. .

Since the professors began circulating their research as a working paper in August, critics have been skeptical that the model will apply to other periods and countries. But Magill is using it to study Japan, and so far it appears to hold up well. The model suggests that much of the long-running bear market there can be explained by the high ratio of retirees to middle-aged people. Around The Markets

A new study of American demographic patterns and the stock market predicts that while the market may rally periodically, its overall direction will be downward until around 2018. .

This bearish forecast is based on a model devised by three finance professors - John Geanakoplos of Yale, Michael Magill of the University of Southern California and Martine Quinzii of the University of California, Davis. In a study titled "Demography and the Long-Run Predictability of the Stock Market" ( –id=329840), they report that their model has done a good job of explaining the bull and bear markets of the last century. But its accuracy as a forecasting tool is untested. .

The professors' approach is complex, but it depends on a simple indicator: the ratio of the number of middle-aged people to the number of young adults in the population. When this ratio rises, the overall market's price/earnings ratio will rise, too, the professors predict. When the age ratio declines, as it is expected to do until about 2018, the P/E will also decline. .

Demographics are the most critical factor in determining long-term market trends, they say, because investment behavior largely depends on age-related patterns. Younger adults, from 20 to 39, are generally consumers. Middle-aged people, 40 to 59, tend to invest in stocks. Retirees are more likely to sell stocks than buy them. .

Market performance is strongly affected by the relative numbers of people in each of these three life stages, the professors say. When more people are entering middle age than retiring, for example, the market tends to rise because more people will be buying than selling. If the next generation of investors is smaller, the trend will reverse when the middle-aged investors retire. .

The major influence on American markets over the next two decades will be the aging of the baby boomers, the approximately 79 million people born in the United States from 1945 to 1965. This generation has about 27 million more people than the one that preceded it, and about 10 million more than the one that followed. .

The big difference in the sizes of these generations has already led to wide market swings, the study found. As the first baby boomers approached middle age in 1985 and began investing heavily, their buying more than offset sales by the older generation then entering retirement. Stocks entered a multiyear bull market. .

That trend is reversing, according to the model, which predicts a long decline caused by sales by baby boomers, as they approach retirement, outweighing purchases by the smaller group entering middle age. Assuming that corporate earnings will grow at the same rate as they have over the last two decades, the model predicts that the market, after inflation, will lose more than half its value through 2018. .

But the model also predicts that, starting the following year, such sales will be increasingly offset by purchases by the baby boom "echo" generation, born between 1985 and 2005, as it enters middle age. That bull market should last more than a decade. .

Since the professors began circulating their research as a working paper in August, critics have been skeptical that the model will apply to other periods and countries. But Magill is using it to study Japan, and so far it appears to hold up well. The model suggests that much of the long-running bear market there can be explained by the high ratio of retirees to middle-aged people.