Monday, May 23, 2016

Here's why bull market in stocks and economic expansion guaranteed for next 20 years


There's only one statistic that you need to know to in order to understand what the outlook is for the economy and the stock market for the next 20 years and it's not how big the deficit is,

It's the fact that for the next 20 years 10,000 baby-boomers PER DAY will be retiring and becoming eligible to receive Social Security, Medicare and Medicaid.

Those problems are already 42% of annual Federal spending. ($1.8 trillion out of $4.3 trillion.) However, they're just going to continue to grow and grow and grow for the next 20 years.

You know what that is? It's government guaranteed income support. Just like what they're proposing in Switzerland only maybe half. Still, it's something and in the aggregate, when you consider the numbers--tens of millions of people--it's a massive and ongoing fiscal transfer to the economy.

This is why this recovery has lasted longer without a recession than anyone predicted (other than us, here). And it's why stocks keep going up.

With those kind of guaranteed flows the companies in the S&P 500 can ALWAYS squeeze out their trillion and a half or trillion eight of earnings.

Bull market...next 20 years.

7 comments:

Greg said...

Although many within that twenty year period, starting in about 6 years I believe, will not get the full amount promised. Wasn't 1965 proposed somewhere as the cutoff date for full grandfathering of benefits? People after that date will have to suffer what ever cuts this new congress agrees on (and that is ONE thing that will find enough votes form both parties to pass) and my son may never see a dollar of SS. I do hope that his generation wises up and can get some better state supported income enhancement.

Michael Norman said...

That could be. If that's the case, then, we go short. It's not like we won't know about it.

Hamish MacEwan said...

"Social Security, Medicare and Medicaid" I'm a foreign poster, are those entitlements a nett increase for the 10,000 boomers that stop working and start collecting?

Ryan Harris said...

Medicare will be expanded to more of the population maybe to 50 year old people at first. It will be a way to preserve Obamacare as more and more private insurance companies bailout by removing the most expensive, sickest group of people from the insurance pools. And social security benefits get raised, it is how the two-partiers convince angry voters they understand their plight, should be re-elected and at the same time they don't betray their financial contributors with real progressive reform. If all that happens, interest rates get back to 5% even though everyone says never going to happen. But that is way into the future and for now markets are transfixed on the past glory... China's post-industrial implosion while few are watching the future India and ME and Africa. The added supply of US dollars to the rest of the world economy from social programs enables growth to resume...

PeterM said...

OK this is a possibility but there is nothing guaranteed.

Nebris said...

Remove the cap on SS and the system will be fine.

Calgacus said...

Good point, Mike. The enormous damage that the crazy giant trust fund / Greenspan hike in SS taxes did was very real, suffered by many baby boomers, but has already been done. Its depletion henceforward is only a partial step toward repairing it, but is huge. Benefits depend on nothing but politics in the future. But as long as enough people laugh at the mainstream nonsense - and that is happening and will happen more - benefits are not going to be cut, SS will continue to be the 3rd rail, the next generations will see many SS $s and such a huge, stable, predictable income will support a great deal more economic activity.