I’m in Wellington visiting some relatives in their early 90s.

He’s telling me about his job. Then I realise he’s been retired for 30 years. Retired longer than I’ve been working.

Back in Auckland, I’m doing the familiar drive up Lake Road. There’s the steady but moving queue of SUVs. Grammar students making their way to school, more orderly and behaved than we ever were.

I miss Leighton Smith on Talkback. But I still tune in, listening to the ads as a barometer of the audience economics.

I advertised on the station for years — mostly health, financial, and charity offers with 0800 numbers. Our targets were older.

It’s still Auckland’s #1 station. But now the ads have gotten even older.

Every break has an ad for a retirement village. Often mobility aids. Sometimes incontinence.

It’s time to flick to a younger station. The music is too upbeat for the traffic speed. Then the ad break starts. Personal loans. Vegan soups. Mortgage reduction.

Then I realise I’m sandwiched in the middle. There’s no station for me.

Not old enough. Not young enough.

When my parents were younger, they were part of a big cohort — the Baby Boomers. They were all in their 30s and 40s together. They seemed to drive New Zealand.

Now we’re more fractured by age. And this is changing not only our economy, but most developed countries.

Low interest rate life support

Europe leads the way in pricing ageing.

2001, the ratio of people over the retirement age (65+) to the working-age population (15­–64) in the Euro area was about 0.25.

By 2050, it’s projected to be 0.5.

In other words, four workers used to support one OAP (old age pensioner). Soon it’s going to be two.

The numbers in New Zealand aren’t as incontinent. But we’re heading in the same direction.

What happens with money?

Households accumulate assets prior to retirement. Capital becomes more abundant. With declining fertility, spending slows. The ratio of assets to GDP increases.

In Europe, the assets-to-GDP ratio is set to increase 8% from 1980 to 2030.

And this will drive the natural real rate of interest from 2% in 1980, down to 0.4% by 2030.

European Central Bank President Mario Draghi. Source: CNBC

This month, European Central Bank President Mario Draghi joined other central banks to revise interest rate expectations. No hikes are expected. Fiscal stimulus is likely.

The Euro fell sharply.

The current European interest rate ECB (base rate) is 0%.

Even with generous bank margins, I found a five-year fixed mortgage in Germany for 0.35%. Pity about the weather.

Friends in the UK pay 1.8%. The Bank of England base rate is 0.75%.

And even in the supposedly younger economies of Australasia, base rates are 1.5% (New Zealand) and 1.25% (Australia).

It is evident our banks take hefty margins. Turns out there are Chief Executive chauffeurs and wine storage to pay. But that’s another story.

The US, booming after the GFC in comparative terms, has relatively high interest rates. The fed just left rates steady within a range of 2.25-2.5%. Trump’s been pressuring Powell to cut them further – or he could get demoted. Powell retorted he plans to serve his four-year term. Still, the Fed indicated a readiness to lower rates in future. For the first time in a decade. [openx slug=inpost]

Stocks go nuts

Most weeknights, around 8pm I bring up my trading screen. The other night, it was a happy sea of green. Stock prices had leaped. And then you start scanning the news to see why.

Ah, the prospect of a Fed rate cut soon. European interest rates remaining at zero. Fiscal stimulus.

There’s nowhere else for the tsunami of retirees and those with capital to obtain a return.

And therefore we find ourselves in a long-run buy-and-hold bull market.

In the UK, a two-year fixed-term deposit pays the ‘great rate’ of 0.85%. With Deutsche Bank, you’ll need to lock up for five years to earn 0.50%.

Here in New Zealand, rates are coming down. ASB term deposits for five years now sit on 3%.

Meanwhile, by taking a little risk, you can get 7% in dividends from selected companies on the NZX, ASX, or FTSE.

How to invest

The grey tsunami will only grow bigger. Low interest-rate life support will continue.

If you’re not in stocks now, you might miss out on continued gains. The new wealth divide will be a financialised one.

What about property?

In theory, investment property can also provide retirement returns. Yet, governments the world over are jumping on housing — to try and make it more affordable and protect renters.

Younger people have been sucked into the low interest-rate environment. They’ve borrowed like no tomorrow to pay for overpriced houses, often on top of student debt.

This further puts a straitjacket on central banks. Hike interest rates and you could crash the housing market. And damage the economy. New Zealand and Australia, over-invested in housing, are looking very vulnerable in this regard.

Commercial property looks to be a bright spot, but the entry price is high. And for many investors, if you sink $2 million into a commercial building, you’ll have little diversification. Again, I prefer a share instrument to enter this market, using a REIT such as local industrial investor Property for Industry [NZX:PFI].

There are risks. PFI is not cheap, currently priced well above its book value. A major correction in that market could bring its price down.

Still, markets keep creeping ever higher as the retiring developed world (and their advisors) hunt for return.

The dangerous cliff

The ageing population is a lot like global warming. It creeps up on you slowly. The ice melts. Everyone at the supermarket at noon has grey hair.

And then you have a crisis. Homes get washed away. Pensions start running down.

So governments act. Economies are stimulated. And the developed economies must embrace the Viagra of immigration, bringing in swathes of younger people from the developing world.

Countries like Italy and Japan at the crest of the cycle are already looking at this option.

We know how this goes in New Zealand, as we’ve been running some of the highest per capita rates of immigration in the developed world.

House prices boom. Inflation returns. Interest rates rise again. Those in debt — younger people, first home buyers, and the workers — get trapped in the vice.

When people move and the world changes, there’s turbulence. Trade wars heat up, the anti-globalisation populist movement will knock heads, and there’s the possibility of war rearing its ugly head.

Suddenly money gets expensive again. And then we have the recipe for the biggest stock market crash in history.

But I don’t see that happening for a long time. I could be wrong. Maybe we should be in gold. Right now, like every other ageing bugger, I’m hunting for return.


Simon Angelo
Analyst, Money Morning New Zealand

Important disclosures

Simon Angelo owns shares in Property for Industry Ltd [NZX:PFI] via wealth manager Vistafolio. The value of shares may rise as well as fall, as may any income from them. No recommendation is given.