Seven years ago I did a thesis on demographics and capital flows, which informs my thinking on economics and finance to this day. That’s a long time ago, though, so I thought that I would provide an update on one of the key pillars of that work. It starts with ageing. The breadth and speed of population ageing currently sweeping the global economy is unprecedented in human history. It is partly driven by rising life expectancy, which we can crudely hold to be a linear function of economic development. But it is also a result of a complex fertility transition. Two stylised facts should be highlighted at the outset. Firstly, the demographic transition does not end with a homeostatic “equilibrium” of replacement level fertility. Secondly, the decline in fertility seems to be driven by two forces; the quantum effect which operates on a quantity/quality trade-off and the tempo effect, which is the phenomenon of “missing births” as women postpone having their first child. The two are connected in complex ways, that we probably don’t quite understand. My goal here is to understand what is happening to global fertility rates. My sample is the World Bank’s data and their estimates of total fertility rates across countries.
Read MoreGoogle informs me that the advice to "sell in May, and go away" comes from the tradition of British merchant bankers—I presume in the 19th century—to leave London for the country side in May and come back on St Leger's Day in September. I am partial to a good anecdote, but does it work? In order to check, I ran a little study using the S&P 500 going back to 1991. The first chart below shows the returns you would have foregone by selling in May and waiting 35 weeks and 17 weeks, respectively, before buying back. I have included both mean and median returns, because the outliers can skew the former when your sample size is not large. The second chart shows the results of a strategy which shorts the S&P 500 in May, buys the first week of October, and holds until year end.
Read MoreInvestors have found it difficult to resist the temptation to become armchair generals in response to the recent flurry of geopolitical volatility. I have some sympathy for that. Political experts told us that Mr. Trump would mark the beginning of a new U.S. isolationism, and even speculated about the emergence of a new Monroe doctrine. The president's "America First" discourse, the statement that NATO is obsolete, and the rapprochement to Russia were all pivots watched ominously by other world leaders, especially in continental Europe.
This story, however, increasingly feels like ancient history.
Read MoreI have a feeling that equity markets are setting a trap for investors, but I can't quite figure out which kind it is. Will the last bull be sucked in before the disappointment sets in, or are we now on a sustainable glide path towards new highs with maximum frustration for the sceptics? We didn't get any decisive clues last week. Equity volatility rose a tad, but ranges remain incredibly tight across a number of key asset markets. False breaks are guaranteed, and vol-sellers will continue to play cat and mouse with the heroes trying to straddle the ranges, playing for a breakout.
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