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Manning & Napier (NYSE: MN) provides a broad range of investment solutions through separately managed accounts, mutual funds, and collective investment trust funds, as well as a variety of consultative services that complement our investment process. Founded in 1970, we offer equity and... More
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  • Investing Today With Long-Term Trends In Mind 0 comments
    Jan 27, 2014 12:16 PM

    Short-term news may drive day-to-day market volatility, but over time the long-term trends ultimately matter. In this post, we examine the long-term trends that most investors are not focusing on today, and the potential risks and opportunities that lie ahead for those most affected - the Boomers (those commonly born between 1946 and 1964, and the Millennials (oftentimes those born between 1980 and 1999.

    Smooth Sailing Ahead?

    In Greek mythology, Scylla and Charybdis were monsters that symbolized difficult passages sailors had to make. The U.S. economy faces the difficult task in the coming years of sailing between its own demographic version of Scylla and Charybdis, navigating the two major demographic waves moving through the country: Boomers and Millennials.

    The Baby Boomer retirement movement is an unprecedented economic event. The number of people entering their prime spending years (ages 35-54) does not make up for the number leaving. As a result, retiring Baby Boomers potentially represent a headwind to future consumption.

    At the same time, the largest demographic cohort in the history of the U.S., the Millennials are entering into the workforce during a very difficult time, with elevated levels of student debt. The combination of higher initial debt coupled with suppressed earnings power certainly has the potential to lead to delays in normal life cycle purchases, i.e., new vehicles or homes.

    The issues confronting the Boomers and the Millennials further reinforce our slow-growth outlook. This is the Scylla and Charybdis that must be navigated: finding a path that seeks to avoid the problems created by one area (for example, insufficient savings of Boomers), and does not worsen the problems of the other, (spending power of Millennials). It is important to recognize that a trade-off of improvement for one of these at the expense of the other may be a less bearish scenario, versus an intersection of the two problems to form a larger issue.

    The Algorithmic Kraken

    In keeping with our mythology theme, the Kraken and Leviathan stood in for all monsters that swam beneath the surface, which could rise up and capsize. Today, humanity still fears dangers below the surface of its understanding. Many of these modern fears relate to technology themes, which are much harder to fully understand and calculate the full effects. In the past, we've highlighted algorithms as an emerging technology that is out of sight for most people - the modern-era Kraken.

    Algorithms and automation will be beneficial to the economy as they will relieve some of the stress created as Baby Boomers retire from skilled trades. Additionally, learning algorithms and their related enabled technologies could help make dramatic improvements in elder care, reducing health care costs; one of the major risks from insufficient savings for the Baby Boomers. This could increase the time Baby Boomers could live off their savings, while allowing them to spend more on other goods and services that they wouldn't be able to otherwise.

    On the other side of the spectrum, learning algorithms could exacerbate the headwinds Millennials are facing by devaluing many of their (expensive) degrees. Yet, use of algorithms and increased automation also increases overall productivity in the U.S. and decreases the cost of producing goods here. The key point is not to focus on one risk from any specific technology; rather, incorporate how the myriad of potential tech paths are likely going to interact with other themes going forward.

    Aegis Against Headwinds

    The aegis (the shield of Zeus) afforded safety and security. From investors' standpoint, it is important to find companies and industries that are ahead of the curve in terms of investing in automation technology and hiring workers. With any disruptive innovation, there will likely be industries created that we've not yet seen - but there will also be industries today that will become obsolete. Normal risks have the ability to transform into a much more serious threat under the right circumstances or in combination. A flexible investment approach is necessary to shield us from these uncertain outcomes. We must monitor these technologies as they evolve, navigating threats as well as opportunities.

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