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Demographics and Stock Markets
- The hot topic right now is demographics.
- Will the baby boom power the stock market to the moon?
- This demographic indicator from Volume 29 US Demographics
and Employment worked well in Japan. It also worked between 1900 and 1950 in the US
(when the number of 45 year olds grew as a straight line). Volume 29 also includes the US
version of this indicator from 1900 to 2050 using official US Census Bureau projections.
- Is the Saver/Spender Ratio the Holy Grail? No.
- Does it refute the argument that baby boom savings will power the stock market until
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1989 saw the first significant
deceleration in the five-year growth rate of this ratio. It can be seen as an angle in the
relatively smooth curve, and it corresponded with the peak in the Japanese stock market.
- V29k9706.PDF (99kb) Includes Explanatory Notes for the chart
- Chart k from Volume 29:
US Demographics & Employment of the June 1997 Encyclopedia shows the Japanese "Saver/Spender Ratio" overlaid on the
inflation adjusted Nikkei 225 (1960-97) This ratio fits the
Nikkei average quite closely.
- The "Saver/Spender Ratio" (a variation on the "Yuppie/Nerd" ratio) divides the
40-49 year old population by the 25-34 year old population. 25-34 year olds tend to be
spenders (buying houses, raising children, etc.), while 40-49 year olds tend to be savers
that tend to invest aggresively in stocks. By dividing them, this ratio attempts to
represent the buying pressure on stocks due to demographics.
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- Why does the Saver/Spender
- Others have argued that Spenders fuel economic growth with
their purchases. While it is true that they spend a lot, they typically borrow at least as
much. Their demands on the credit market decrease the money available for all financial
assets, including stocks. Savers are actually bigger spenders
than spenders. While the BLS Consumer Expenditure Survey doesn't use the Saver age group,
it's clear from the two overlapping age groups that it does use that Savers
actually spend about one third more than Spenders. Because
the incomes of Savers are so much higher, they are actually the
group that has the largest per capita savings, despite being the biggest spenders. Savers
appear to have the highest per capita income after taxes of any ten year age group
(estimated from CES results). Why aren't 50-59 year olds bigger savers? Probably because
many have already retired (55-64 year olds have lower per capita income than even 35-44
year olds). Finally, we would argue that Savers (40-49 year
olds) put their savings in stocks (often via mutual funds). Because 45-54 year olds
already have much of their savings in stocks, they are more likely to put incremental
savings in bonds (why the Yuppie/Nerd Ratio
works). This may also be due to the fact that per capita income typically peaks in that
age group. Psychologically, it is easier to take a risk with "found money"
(i.e., a raise) than with money you're used to receiving.
- Note: In retrospect, Savers should probably
have been called Borrowers.
- Those that argue that the baby boom will fuel U.S. stocks until 2007 should examine this
chart and V29l (U.S. Saver/Spender Ratio overlaid on the inflation adjusted S&P 500,
- You may be in for a surprise! Hint: the five-year growth
rate of the U.S. ratio peaked in 1996...
- The explanation pages of Volume 29 examine the 1929 peak, the 1948 low, 1966 peak, 1982
low in the Constant Dollar DJIA and the future. There is a table listing the values of
both the U.S. Saver/Spender Ratio and its five-year growth rate from 1995 through 2006,
allowing the reader to make his own, informed decision.
- Yuppie/Nerd Ratio
- The late Stan Salvigsen of Comstock
Partners, Inc. developed what he called a "Yuppie/Nerd Ratio". It compared
the number of 25 to 34 year olds ("Yuppies") to the number of 45 to 54 year olds
("Nerds"). He developed it for bond market analysis. Charles Minter of Comstock
Partners, Inc. continues to track this ratio and employ it in his analysis.
- Yuppies (25-34 year olds) tend to be spenders (buying houses, raising children, etc.),
while Nerds (45-54 year olds) tend to be savers. Nerds
tend to be buyers of bonds, while Yuppies tend to be net borrowers.
This ratio is intended to show the publics side of the supply/demand equation for
- Comstock Partners, Inc.
- 993 Lenox Drive, Suite 106
- Lawrenceville, NJ 08648
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Last modified: April 06, 2005