Another popular session I moderated at the Society of Actuaries annual meeting was #132, Looming Demographic Trends and Their Investment Implications. This session featured Jason Hsu, CIO of Research Affiliates, and Richard Hokenson, of Hokenson & Company.
Dr. Hsu had the floor for the first 30 minutes. He presented Research Affiliates’ increasingly renowned view on “The 3-D Hurricane: Debt, Deficits, and Demographics.” It suggests a future with a nearly inevitable increase in inflation, particularly for US retirees, consumers, and investors. Hsu’s presentation was a feast for infovores, so at the SOA Annual meeting he was in the right place! The 3-D Hurricane will lead to high inflation, high credit costs, low developed economic growth rates, and weakened developed economies’ currencies. A warning echoes still: in the future, the suppliers of labor capital (mostly from some of the emerging economies) will be able to command pricing power over their own output to their consumers, who are likely to be aged developed economies. Aging populations with debt overhangs take note.
Hokenson presented a surprising piece on what he calls “the race to zero,” suggesting we’re headed toward zero growth, zero interest rates, AND zero inflation. Hokenson’s delivery was colorful and entertaining. He offered relatively more cultural insights, for example on the issue of whether China’s skew toward males due to its one-child policy might make it more war-prone, he pointed out that historically families have been willing to send off superfluous males to fight, but not their only males.
I wish we had more time for this session, and I’m sure the attendees did, too.
This page hosts an archive of all the 2011 Annual Meeting presentations. Scroll all the way down to session 132. presentations on the investment implications of impending demographic events
I should point out that two of Dr. Hsu’s colleagues, Rob Arnott and Denis Chaves, recently wrote a paper using novel statistical methods to verify several demographic-economic relationships that had long been observed but not so well validated: Demographic Changes, Financial Markets, and the Economy