If you think the markets are having a tough start to 2016, of course, you’re right. But don’t read Bill Gross’ latest take on investing trends for this year if you are looking for any sunny predictions.
While the Janus Capital portfolio manager (and founder of PIMCO) doesn’t share his pessimistic views of specific stock sectors and markets, he hammers home the dismal fiscal and demographic situation of the United States in his January outlook.
“It’s a wonderful life for the 1% and a Xanax existence for the 99,” he explains.
“Kidding aside,” Gross adds, “… if the 99 think they’ve got it good (bad) now, just wait 10 or 20 more years until their bills really come due. Of course by then, the 1% likely won’t be doing so well either, but there’s the hope that each and every one of them (us/me) can sell before the deluge.”
What’s Gross getting at? The liabilities tied to the baby boomers — health care, private pensions, Social Security and “the unestimable costs of global warming,” he states.
It’s really just a numbers game, or as Gross puts it: “Demography rules.”
“If financial-market observers seem aghast at current Greek or Puerto Rican debt traps, they would surely take a double dose of Xanax when confronted with this: Fact – the U.S. government has current outstanding debt of approximately $16 trillion or close to 100% GDP,” he writes.
Citing research by Mary Meeker and others, he also points out that the present value of Medicaid’s commitments is $35 trillion, Medicare’s is $23 trillion, and Social Security’s is $8 trillion. These promised services bring the bill to $66 trillion, or 400% of GDP.
“We are broke and don’t even know it … we are having our cake, eating it at the same time and believing that a new cellphone app will be invented in the near future to magically deliver more of the same,” Gross says. “Not gonna happen, folks.”
What to Do
Some politicians advocate reducing the growth rate of current government debt.
But that “does little to help what in essence is a demographic not a financial problem: too few millennials to take care of too many boomers,” he points out.
As other analysts have highlighted in their research, the ratio of retirees to workers – the so-called dependency ratio – is soaring from .25 retirees per worker to .35 retirees per worker over roughly the next decade.