IPFS News Link • Pensions
Consequences Are Unavoidable
• Zero HedgeOne of the things any investor must understand is that everything has consequences. There are always consequences. They are unavoidable. 13 years of monetary experimentation by central banks has profound consequences. For everybody.
A few days ago my colleague, Mike Hollings, CIO of Shard, and I put together a vlog on shifting market conditions. I've known Mike for decades, and we both agree it's the consequences of the last 13 years of monetary distortion (since the beginning of the Global Financial Crisis that began in 2007) that present the greatest long-term challenges for markets. (You should be able to see some highlights of our chat in the latest Shard Lite-Bite video later today.)
One of the issues we covered was the effect of repressed interest rates on savings – and how challenging these will be to the expectations of current pension plans. Sure enough, bang on time, there are two stories in the market this morning that throw our concerns into stark reality.
1. The first is an apparent collapse in European birth rates. Far from the virus causing couples to spend their lockdown time engaged in amorous activities, it appears the pandemic has been an enormous discouragement to births. This could trigger profound demographic consequences – the most critical long-term factor acting on economic growth.
2. The second is the increasing stress in Pension Schemes to match low yielding assets to rising liabilities. The longer interest rates are repressed, the less pension schemes are going to able to fund expectations, triggering all kinds of potential social consequences – what's the point in saving when savings are worth nothing?
In this morning's Thunderer, Simon Nixon writes about tumbling demographics as the pandemic baby boom fails to materialise. Data from Spain, France and Italy shows births were down 20.4%, 13.5% and 21% in December 2020 – the first month we'd expect to see pandemic births. Italian research suggests women have postponed planned pregnancies because of the virus. The result is 200,000 fewer Italians in a single year as deaths outpace births.