Two Big Trends Are about to Collide — Part Two

In the financial world, 1999 is best remembered as the year before the dotcom bust.

For those who were there, it was a heady time. Speculation was rampant. IPOs with anything remotely related to dotcom were a licence to print money. A new paradigm awaited.

It was also the year when the drug rapamycin — an immunosuppressant to prevent the rejection of transplanted organs — was approved by the US Food and Drug Administration.

Here we are in 2021.

The air around Wall Street is thick with speculation. Margin debt (in inflation-adjusted terms) is almost double that of the dotcom and US housing bubbles:


FINRA Margin Debt and The S&P 500 Real Values

Source: Advisor Perspectives

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And rapamycin appears to be far more than an immunosuppressant used solely for anti-rejection. There are promising signs the drug has a wider application in slowing down the ageing process.

After 22 years, the world has provided us with an interesting dichotomy.

When it comes to health, we are living longer, but when it comes to wealth, we are living on borrowed time.

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Add 22 years to your current age. If in 2043 you’ll be in your 70s, 80s, or 90s, how much longer could you expect to live for?

Another 10, 20, 30, or even 50 years? Inconceivable? Don’t be so sure.

Every year that ticks by, scientific progress is evolving through its trial-and-error processes.

Between now and 2043, who knows what further advancements are going to be made in society’s search for eternal youth?

Living beyond 130 is a real possibility.

In 2043 could we have another echo of history?

Will a youthful-looking President Michelle Obama (aged 79) be facing impeachment?

Are Apple and Samsung still going to be the dominant mobile phone providers? Or will mobile phones be a relic of the past?

Hopefully for the Kennedy clan it’s a year without mourning.

Will there be a biotech boom…companies rushing to the IPO market with their latest anti-ageing product?

Could there be another virus — an unintended consequence from all those epigenetic tweaks?

Will a 79-year-old Keanu Reeves (with a biological age of 40) be starring in another Matrix?

Who knows?

The reason for this sneak peek into what’s happening in the world of biotech is to alert — not alarm — you.

We know increased longevity is coming…we just don’t know when and how long our lifespans could be extended.

However, we need to be prepared and plan for it.

A society full of older people will bring with it a host of changes.

These are some of the obvious ones…

  • Marriage: Will it really be a contract that includes…till death do us part?
  • Retirement age: Will it extend out to 70, 85, or even into the 90s?
  • Welfare funding: Female eligibility age for the Age Pension used to be 60. In recognition of our ageing society, female Age Pension eligibility has been pushed out to 67. Over the next 20 years, this could go be pushed out to 75. Don’t be surprised if the family home is counted as an asset…forcing people into reverse mortgages.
  • Healthcare: Will it be more proactive than reactive? Better understanding of our body’s genome could result in a transition to preventive medical practice.
  • Generational friction: Boomers hanging round for even longer and really ticking off Gen Xers and millennials.

A seismic shift in the traditional pyramid structure of society is going to have intended and unintended consequences.

Second-guessing the potential variables is well beyond my intellectual scope.

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The one thing we need to focus on

To keep it simple, I focus on the one single thing that will remain constant throughout all this change: the need for capital.

If I have capital, I don’t have to be as concerned about whether…

a) Age Pension accessibility rules may or may not change.

b) Access to anti-ageing treatments will or will not be subsidised by government.

c) Healthcare costs rise or fall.

d) We’ll live too long and outlive our capital.

All of this thinking takes me back full circle to 1999.

That was the final year of the secular (long-term) bull market, as defined by Crestmont Research.

The tech wreck in 2000 was the start of the secular (long-term) bear market.

Since 2000, the secular bear has tried on three occasions (2000/02, 2008/09, and 2020) to correct the market excesses.

Each time the market has commenced this cathartic exercise, the Fed has marshalled the forces of low interest rates and QE to keep the secular bear at bay.


Living Through This Secular Bear Market

Source: Crestmont Research

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The secular bear may have retreated, but it has not gone away.

Pendulums swing for a reason. Forces propel them in one direction and then in another.

Assuming the market cycle is still operational, then physics tells us the further you take the valuation pendulum to one side, the equal and opposite force will move it in the opposite direction.

The above chart clearly shows momentum is building. The Fed has used an enormous amount of energy in its fight against the gravitational pull of market forces.

Pushing, pushing, pushing the market up and up.

As history shows us — at some point — gravity always wins. And as they say, the higher you go, the harder you fall.

A 65% fall from this level would take the Dow back to 10,000 points and a 75% fall goes back to 7,000 points.

While these percentages (like the prospect of living well beyond 100) might seem inconceivable now, they’re (based on long-term valuation metrics) a very real possibility.

The Fed has been conducting its own anti-correction clinical trials on the market. Massive doses of zero-bound rates and QE have proved effective in reversing the correction process.

However, is it possible the dosage levels have been so great, the market no longer responds in the same way?

The US share market is ageing and the Fed’s efforts have extended its life for far longer than anyone (except the supreme optimist who believes market cycles have been repealed) could have imagined a decade ago.

However, the Fed’s cure is not the elixir of life for the market. It’s just prolonged the use-by date.

This market will die from the same ‘diseases’ as all markets that have gone before it…overextended valuation levels based on nothing more than optimism and speculation, artificially inflated earnings, excessive levels of high-risk corporate debt, and margin lending.

When this market makes its last gasp is unknown.

However, if I want to keep my capital for the long (and what could be much longer) term, it means I have to wait this out.

There’s a real irony in the intersection of these two big trends.

At the same time, we’re creating the means to live much longer lives and destroying the means needed to enjoy those added decades.

The thought of living on welfare from 80–130 is what gives me the resolve to wait patiently for the awakening of a rampaging secular bear.

For now, my focus is on the health, well-being, and security of my wealth.

The final week of Rum Rebellion

This is my final article for The Rum Rebellion.

It’s been a privilege and a pleasure to share my views with you each week. Along the way, readers have tossed brickbats and bouquets. Both were welcomed. Your feedback is a vital part of the inspiration.

Thank you for taking the time each week to read the musings of (what Greg calls us) this stable of misfits.

As from next week, The Rum Rebellion will be merged with The Daily Reckoning Australia.

I look forward to your continued loyal readership and of course, your valued feedback.

Regards,

Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: Vern is also the Editor of The Gowdie Letter and The Gowdie Advisory — investment services designed to help everyday Australians avoid the financial pitfalls of a volatile economy and make informed decisions to grow their wealth for generations to come.

 


Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.


The Rum Rebellion