The retirement of the baby boomers, and the reduced numbers and frugal spending patterns of Generation X, are not only bad news for the real estate market for the next 20 years, they are going to be a huge drag on the economy as a whole. The distinguished economist, Robert J. Gordon, of Northwestern University in Chicago, argues that we are entering the slowest growth period in US history. Per capita GDP grew at a healthy 2.44% annual rate during 1928-1972, then downshifted to 1.93% from 1972 to 2007. He expects it to fall further to 1.5% during the next two decades. By 2027, US GDP will be only 35% higher than it is today. They must be laughing in Beijing.
Past generational slowdowns like this were offset by the huge productivity increases delivered by rising education levels. That won’t bail us out this time. Distressed state and local finances are pushing the public sector into 20 years of cost cutting that is sending education spending plummeting, leading to the great “dumbing down” of America. No productivity gains here. There isn’t enough new technology being invented to take up the slack.
This is why I have been urging traders and investors to get their money the hell out of the US since the inception of this letter. Get it into emerging markets, emerging market debt, foreign currencies like the Australian and Canadian dollars, commodities, precious metals, and food. Rallies in US markets should be viewed only as trading ones which are to be sold into. Only invest here when you are compensated for the higher risk you are taking, such as in technology, energy, commodities, and solar companies, along with junk bonds. Keep your passport up to date, and better start taking those night classes in Portuguese, Russian, Hindi, and Mandarin.