The eroding demographic base encourages the resumption of QE, will bring us back to a stagnating, low inflation environment & reward investors for betting on the scarcest of all things: Growth!
"We will be back to an anemic growth, low inflation environment quicker than many people think. And it will fuel asset prices for those stocks that offer what is scarcest: Growth!"
How is a dire situation somehow positive for investment? If growth is anemic, how can there be growth stocks? And how can investments get 'more valuable' the more dire the situation gets? I think it goes on a long time like Japan but eventually you get a hyperinflationary collapse. Japanese yen is already falling off a cliff.
there will always be growth stocks in some pockets of the economy bc it is not static. finding them will become more important in the future bc there will be so few of them.
Yes totally agree there can be growth stocks under any interest rate environment, inflation, deflation. The argument I see is that higher inflation is the cost of innovation 'transition', even if it slows it down (think transition from ICE to EV). Another argument I see is that rate suppression/deflation is a societal choice, as is high inflation. Some have argued the Japanese are more disciplined and able to internally bare the dire situation of their demographics and economics while other countries may go all populist, smash windows, riots, have a revolution. Either way I found the idea strange that suddenly stock markets would cheer on a deflationary situation or rate suppression as if you can 'get something for nothing'
I would argue, that inflation accelerates the 20-80% part but slows down the 0-20% of the disruptive technology.
In this energy inflation (germanys energy prices are brutal), having solar and a Tesla is waaay cheaper than gas. Thus the already superior BEV technology gets turbocharged, but it had to reach the tipping point before it could be turbocharged
haven't i addressed your argument about less supply in the article? the infrastructure for a larger population will still be there.
number of USD will not remain in the system bc prospects of a smaller economy will be a burden on bank lending. this is precisey the reason why central banks have replaced that liquidity shortfall with QE.
it is also a highly optimistic assumption that gdp/capita will remain stable as the share of dependent people in the population increases.
you could divide M3 by the Fed's balance sheet to get a feeling for the relevance of each.
I actually have an article in the pipeline on the inflationary aspects on an ageing society where i will touch on japan's experience. not a prio right now, but i will eventually get to finishing it.
One important aspect for dearth inflation is that it often is subject to substitution. if a labor intensive product or service becomes to expensive due to labor shortage, pressure increases to replace it with something less intensive. think for instance about investment in agricultural machinery in the northern US in 19th century bc slavery was abolished. South still had cheap labor due to slavery with little incentive to invest.
"We will be back to an anemic growth, low inflation environment quicker than many people think. And it will fuel asset prices for those stocks that offer what is scarcest: Growth!"
How is a dire situation somehow positive for investment? If growth is anemic, how can there be growth stocks? And how can investments get 'more valuable' the more dire the situation gets? I think it goes on a long time like Japan but eventually you get a hyperinflationary collapse. Japanese yen is already falling off a cliff.
there will always be growth stocks in some pockets of the economy bc it is not static. finding them will become more important in the future bc there will be so few of them.
Well you constantly have new industries, 50 years ago where was the internet, PC, smartphone, social media?
These are just examples of growth in the world.
In General every time the rules of the ecosystem change (I.e. disruption) you have growth and it adds value, so it’s a positive sum game
But established industries decline, because the costumers are literally dying away
Yes totally agree there can be growth stocks under any interest rate environment, inflation, deflation. The argument I see is that higher inflation is the cost of innovation 'transition', even if it slows it down (think transition from ICE to EV). Another argument I see is that rate suppression/deflation is a societal choice, as is high inflation. Some have argued the Japanese are more disciplined and able to internally bare the dire situation of their demographics and economics while other countries may go all populist, smash windows, riots, have a revolution. Either way I found the idea strange that suddenly stock markets would cheer on a deflationary situation or rate suppression as if you can 'get something for nothing'
I would argue, that inflation accelerates the 20-80% part but slows down the 0-20% of the disruptive technology.
In this energy inflation (germanys energy prices are brutal), having solar and a Tesla is waaay cheaper than gas. Thus the already superior BEV technology gets turbocharged, but it had to reach the tipping point before it could be turbocharged
great article!!
Thank you, Reno!
haven't i addressed your argument about less supply in the article? the infrastructure for a larger population will still be there.
number of USD will not remain in the system bc prospects of a smaller economy will be a burden on bank lending. this is precisey the reason why central banks have replaced that liquidity shortfall with QE.
it is also a highly optimistic assumption that gdp/capita will remain stable as the share of dependent people in the population increases.
you could divide M3 by the Fed's balance sheet to get a feeling for the relevance of each.
I actually have an article in the pipeline on the inflationary aspects on an ageing society where i will touch on japan's experience. not a prio right now, but i will eventually get to finishing it.
One important aspect for dearth inflation is that it often is subject to substitution. if a labor intensive product or service becomes to expensive due to labor shortage, pressure increases to replace it with something less intensive. think for instance about investment in agricultural machinery in the northern US in 19th century bc slavery was abolished. South still had cheap labor due to slavery with little incentive to invest.