A Wander in Alice-Land
*** SPECIAL BREXIT NOTE ***
After the following edition of The Passing Parade went to press, the world was stunned by the decision of UK voters to leave the European Union.
I will not claim to be an expert on the mechanics of this vote or the immediate aftermath. However, as an individual with a life-long belief that big governments mean big problems, I can only believe that once the dust settles it will turn out that the citizens of the UK did the right thing.
Regardless, the world’s financial markets will now likely go through a period of financial turmoil.
I would urge you not to panic as that could lead to unnecessarily locking in losses.
For those in the US stock market, keep in mind that trillions in investment dollars around the world have to find a home somewhere.
For the next little while, a lot of money will shift toward government bonds, but with yields at or near negative levels, that is not a long-term option. In the not-so-distant future, that money will begin looking for a better return.
US markets invariably are the world’s top choice as a safe harbor. Especially with the entire European Union now in play.
That makes this period of uncertainty and volatility the ideal time to pick up bargains. And not just in the US but, in time, in rock-solid companies based in Europe that will be punished along with the rank and file.
At the end of this letter, you will find a special offer on our brand-new report Crash Ahead?. That report is now critical reading, and I suggest you take advantage of it.
We live in interesting times.
Today’s edition may be a bit shorter than normal, though I can never really tell.
What I can tell you is that I am on the tail-end of one of those horrible, once-a-decade cold/flu things. As a result, I am writing you with my brain feeling as if it were encased in a diving helmet.
In addition, I am under time constraints as a result of having been roped into partnering up with my pal Charlie for the annual Kirkwood Golf Tournament that kicks off early tomorrow.
“Charlie, are you sure you can’t find someone else to play with you? I’m really, really busy.”
“Aw, c’mon Dave, you and I always play together in the Kirkwood.”
“Yeah, and we always lose because I suck so badly. Can’t you please find another partner this year?”
“Nah, Dave, we gotta stick together! We’re partners!”
So it is that tomorrow I will drag my physical remains, followed reluctantly by my helmeted brain, to the course for a merciless five-hour thrashing by whichever team is fortunate enough to draw us as their opening match. And then I have to do it again on Friday and Saturday and Sunday.
Of course, some pundit will be sure to quip, “Hell, a bad day on the golf course is better than a good day in the office!”
That holds true only if you don’t like your job, which is not the case for me. And if your brain doesn’t feel like a soggy old sink sponge, which is the case for me.
Speaking of golf, despite my blossoming head cold, last Monday I traveled to Pittsburgh to visit my Argentine chums Frank and Kathy for a bit of golf and to spend a day at my first-ever professional golf tournament.
The photo here is of my day at the US Open, where we managed to get in about 45 minutes of viewing before driving thunderstorms caused a suspension of play for the day.
Even so, what I saw was impressive. The organizational effort that goes into putting on an event of this magnitude is a tribute to the capabilities of the human ant. Remote parking lots and shuttle operations of the sort you might find at Disneyland, massive tents including a couple of impromptu golfing department stores, scores of volunteers, a variety of restaurants, a small army of homeland security, etc., etc.
And then there are the golfers themselves, titans of the game able to whack tiny white globes 200 yards and land them within a yard or two of the flag. I am sure there are harder sports to master, but off hand I can’t think of one.
Though I’m glad I did it once, I doubt I’ll ever attend a golf tournament again. The coverage is so much better on television, and you are a lot less likely to get rained on.
But enough on golf.
The parade is rounding the corner, today to the tunes of an eclectic summer-themed playlist hanging around on my computer. It starts with Calvin Harris’s energetic song, Summer, and includes the Isley Brothers’ Summer Breeze, which, in my opinion, features one of the greatest guitar riffs of all time.
(If you know any summer-themed songs, drop me a note at David@GarretGalland.com and I’ll add them to the list.)
A Wander in Alice-Land
As there is no easy way to get to Pittsburgh from Vermont, I decided to drive to Boston and catch a direct flight from there.
To break up the drive, I stopped in a nondescript town along the way in order to buy some supplies at a drugstore, which in this case turned out to be part of the Walgreens chain.
As I was pushing through the front doors, a couple of things caught my eye.
First off, the place was clean and well stocked. Like so many American retailers, it was clearly well managed. While online shopping spells the end of most of the big retailers, maybe the everything-under-one-roof pharmacies have a chance. Maybe.
The second thing I noticed was the age of the employees. I spotted a middle-aged manager scurrying around in the background, but most of the workers were old.
Make that, really, really, really old.
Seriously, the fellow working the counter couldn’t have been a day under 85. And from the looks of him, I wouldn’t have taken a bet he’d make it to the end of the day, let alone to 86. He was literally clinging on to the register as he weakly rang up a purchase.
Venturing further into the store in the quest of my medical supplies, I passed an ancient shelf-stacker who turned and greeted me like a long-lost child.
“Can I help you find something, dear?” she asked enthusiastically, peering up at me through thick glasses.
“Cough medicine,” I replied in a normal tone of voice.
“WHATT?” came the old dear’s surprisingly loud response.
Ratcheting it up a bit, I responded more forcibly, “Cough medicine!”
“WHATTTT? I CAN’T HEAR YOU!” Alice responded. I knew her name was Alice because she was standing about a foot away from me.
“COUGH MEDICINE!!!” I yelled back as gently as I could, yet still drew stares from patrons on the other side of the store.
“OH, I COULDN’T HEAR YOU BEFORE. IT IS OVER THERE!” she yelled back while waving a crooked finger toward a nearby shelf.
“THANK YOU,” I politely replied at a volume sufficient for her to hear me—a volume sufficient to produce sonic waves that rippled her wig—while, I fear, inadvertently spraying her with potentially deadly cold virus.
“YOU’RE WELCOME!” she shouted back, assaulting my senses with her denture breath.
Being curious about such things, I started looking into whether the phenomenon of oldsters having to work longer is a new thing or just appears that way.
What I learned may be of interest.
For starters, as you can imagine, back in the 1800s and before, people pretty much worked until they dropped dead.
The chart here, from a March 2015 report by the Center for Retirement Research at Boston College, shows that in 1880, roughly 75% of men aged 65 and older were still in the workforce.
You can see the precipitous decline to 2008, when the statistic bounced off a bottom at about 15%.
Why the Decline?
According to the CRR report, the first big decline in the older male population in the workforce began in 1880 as a result of the “unexpected and substantial stream of old-age pensions for Civil War veterans.”
The report continues:
The next big decline in the work rates of older men occurred after World War II, a response to the increasing availability of Social Security benefits and the expansion of employer pensions. The introduction of Medicare in 1965 and the sharp increase in Social Security benefits in 1972 probably led to the final decline in workforce activity of older men.
Therefore, the drop in retirement age came about by shifting the burden of providing for ourselves as we grew older onto the back of the public. Or at least those parts of the public that pay taxes. The rest of the populace get their cake, and then get more cake.
Put another way, Social Security, Medicare, and other entitlement programs made continuing to work past a certain age less attractive than not working, and so people stopped working.
But this is where it gets interesting.
There has been much talk of late about the historically weak labor participation rate, which is clearly evident in the chart here.
However, per the topic of today’s missive, let’s view the data based on the age of the workforce.
This next chart shows the labor participation rates for workers between 25 and 54 years of age. You can definitely see the participation rate trending down.
However, the same data for people 55 years and older shows the labor force participation soaring in recent decades.
In fact, the number of people 65 years and older in the workforce has more than doubled over the last 15 years.
There are a number of factors involved, some obvious and some not so much. In no particular order:
- For starters, changes in Social Security benefits. These changes have made it a lot more advantageous to put off retirement. For example, if you wait until you are 70 years old to claim your Social Security benefits, they will be 76% higher than if you claim them starting at 62. Here’s a calculator from the Social Security administration that might prove helpful.
- The idea of a defined-benefit corporate pension is all but gone, replaced by defined-contribution 401(k)s. Back when life was all rainbows and buttercups and the American dream was alive and well, a person might have expected to work at a company for 20 or 30 years, then retire with a handsome predetermined pension.
In 1980, about half of all the workers in the private sector were covered by a pension plan.
No more. Today, only about 19% of private-sector workers are covered, and that percentage is falling fast.
Unless, of course, you are a government worker, where defined-benefit pension plans continue to be available as standard practice. And unlike the private sector, by law these plans can’t be changed once you’ve vested. Suck on that, proletarian rubes!
The rising cost of healthcare. I don’t know about you, but outside of food and housing, federally mandated health insurance has become one of our family’s largest non-discretionary expenses.
According to a recent Gallup poll, Americans now identify healthcare costs as their number one financial problem.
And for good reason. In 2011, pre-Obamacare, Americans spent about 17.25% of their income on healthcare. Today? Here’s a quote from an eye-opening article from Health Affairs:
The problem of affordability is fundamentally a problem of cost. Health care costs a great deal. The Centers for Medicare and Medicaid Services estimated that in 2014 we spent on average $9,695 for every man, woman, and child in the United States on health care.
This means that the average household of 2.54 persons spent on average, over $24,625.
The median household income in the United States in 2014 was $53,697, so the average household with a median income would have spent almost 46 percent of its income on health care—were costs and income evenly distributed across the population.
But health care costs are not evenly distributed. In any given year, 1 percent of the population is responsible for over 21 percent of health care costs, 5 percent for half. On the other hand, half of the population spends almost nothing on health care in any given year.
It used to be that most companies covered most healthcare costs for their employees. With the introduction of Medicare and the rising costs of providing insurance, many companies have tossed their employees out of the private boat and into the public trough.
As a consequence, in order to cover today’s exorbitant healthcare costs, many seniors choose to work at a place that covers at least some of their insurance. And Walgreens no doubt offers attractive employee discounts on the many sundries an aging person might need (except, apparently, hearing aids).
- Governments are increasing the retirement age required to receive benefits. Plus, the devaluation of the fiat currencies has slashed the purchasing power of those benefits. In 1985, the average retiree could expect their Social Security benefits to cover about 65% of their income. Today that number is closer to 27%.
The trend for increasing the retirement age is global. This according to the Finnish Centre for Pensions:
In Denmark, Greece, Italy, the Netherlands, Portugal, and Slovakia, the retirement age will be linked to the development of the expected life expectancy. In Britain, the retirement age will be raised taking into account the life expectancy. In the Czech Republic, the retirement age will be raised with a fixed increase of two months without an upper limit every year.
- People are living longer. This from a recent article by Ken Moraif writing in MarketWatch:
In 1985, men were expected to live 14 years past retirement age (65 years). Women were expected to live until 84—19 years after retirement. Today, men’s life expectancy is 91 and women’s is 94. That’s 26 and 29 years after the age of 65. And of course, the longer people live, the longer their money needs to support them plus the more risk to their investments. After all, the additional time also means more chances for bear markets and rises in inflation.
The following chart shows the projected percentage change in the world’s population by age between 2010 and 2050. Of course, the actual number of people living past 100 will still be relatively small, but the trends are notable.
- Older people are healthier. It stands to reason that people are living longer because they are healthier. Therefore, they are not just able but willing to work longer in order to ensure they have the funds to meet life necessities and perhaps put the occasional cherry on top.
A case in point was provided during my just-concluded visit to Pittsburgh where I was introduced to Joe, an 80-something-year-old. Joe’s family thinks he is a bit of an eccentric because he gets up every morning at the crack of dawn, puts on his suit, and heads to work… even though he retired some years ago.
Over a glass of wine, I learned, however, that Joe was actively involved in a large number of civic and volunteer organizations and did his many good works out of an office that was provided to him free of charge by the firm he sold his company to some years ago.
So, why go to work every day? Because he wanted to. Perhaps to feel relevant or to keep mentally active, but it clearly made him happy, and so why not?
Additionally, thanks to automation, many of the jobs the older folks are doing today are well within their physical capabilities. As opposed to, say, clearing a field of rocks with a plow being dragged by a couple of oxen. I’m not sure Alice would be up to that.
Some Concluding Observations
It seems clear that the rising tide of oldsters in the work force is the result of a number of factors, some tangible—they need the money—and some intangible. For example, wanting to stay active.
In addition, at the right kind of employers, Walgreens as an example, management appreciates that people from the passing generations were typically raised with a strong work ethic and respectful, helpful attitude.
Plus, many will work for minimum wages and be happy to have the work.
Not so much the case with many in the younger generations who may swoon at the idea of a hard day at work.
On the flip side, I’m sure there are many older workers who would far prefer to be sitting at home, swollen ankles propped up on a divan, watching a sports channel, while the little woman cooked up a satisfying lunch. Unfortunately, for those who didn’t plan their retirement well, that ship sailed in the 1980s, and I don’t think it’s coming back.
Of course, circumstances for each of us will depend to a good degree on who we are. In an ideal world, if we work hard and are not overly frivolous with our money, we can hope to make it through a decent retirement.
However, those who throw their money away on tattoos and shiny trinkets in the expectation that government entitlement programs will provide succor in their old age are going to be sorely disappointed and, instead of propping their feet up on a comfortable divan, will be propping themselves up on a cash register at a chain drugstore.
Many years ago, I had the great pleasure of hosting Ayn Rand at her last public appearance. At the end of her speech, during the lengthy question-and-answer period, a man stood up in the large crowd and shouted, “Miss Rand, Miss Rand—but what do you do about the poor people?”
In reply, Ayn coiled up behind the podium, then leaned forward and bellowed in a voice that would have made Alice proud, “DON’T BE ONE OF THEM!”
Sound advice, in my opinion.
Here Come the Clowns!
A World Turned Upside Down
Any thinking person knows that absent a handful of mishaps and political overreactions, the era of fossil fuels will be winding down, replaced by nuclear power.
However, instead of allowing human ingenuity and advances in technology to iteratively improve nuclear power generation to the point where it could now be fueling even personal automobiles, a luddite collection of environmentalists and bureaucrats has conspired to retard the adoption of this near miraculous power source.
That may be changing, because on June 24 there will be a protest in San Francisco against closing down a nuclear power plant! Here’s the story.
An Absolutely Brilliant Short Video
I sometimes wish I had the patience to make films because few mediums are more effective at making a point.
I know you are busy, as am I, but you have to take a few minutes now, or over the weekend, to watch Modern Educayshun. It is an absolutely brilliant satire on how far the educayshun system has deteriorated in favor of political correctness.
I promise, you will love it and will want to pass it on. As you should. Here’s the link.
Crash Ahead? Here’s the Single Best Indicator to Watch
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The second report is called, Profiting in a Low Interest Rate World. It reviews the outlook for interest rates and why they almost have to stay low for a long time to come, and the ways you can invest to actually earn a positive return without taking excessive risk.
So, here’s the dilemma. Strictly because of timing (including the upcoming July 4th holiday), we are not going to start actively promoting Compelling Investments Quantified until next month.
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Now, I seriously don’t want to pressure you into anything. The Charter Subscription offer will likely stay open for about two months.
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And with that shameless but sincere plug, I bid you farewell until next week!
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