ERICOPOLY

Here is another question: In an impossible world where there are no 40 yr olds, would an increased number of 20, 30, 50, and 60 yr olds earn more to relatively offset the loss of the 40 yr olds? No change in overall income. We still have those high-paying jobs that the 40 yr olds otherwise occupied, don't we? I'm trying to think of the demographic as if it's silly putty. Put pressure on the middle and it bulges out the top and bottom, but the mass hasn't changed. But is it fair to compare people to silly putty?

This has been on the WFC thread but I wanted to start it's own topic to bring that thread back to WFC. Is it necessarily true that a demographic with a higher average age would be less beneficial to economic growth as compared to one with a declining age? What is it about the age alone that is negative for economic growth? I can understand quite easily that a slow rate of increase in the population will produce lower growth, but why fear the same result when paired with an increase in retired dependent persons more than the same result when paired with an increase in underage dependent persons? If spending translates to GDP growth, don't an added 5,000,000 75 yr olds translate to more spending as compared to 5,000,000 additional 5 yr olds. No? One argument is that a new baby boom would, in 15 or 20 years, create an overall more productive demographic. But any future forecasting can tell you that we'll have more robots in the future -- isn't a robot paired up with a 75 yr old just as good as a productive 30 yr old? And do we want the potential civil unrest if we have too many idle 30 yr olds displaced by robots? Sure, 40 yr olds are peak spenders in part because they have kids. What if they instead spend on elderly (through taxation) rather than kids? Or if that same amount of tax/spend is spread amongst all wage earnings to support that extra elderly dependent, is that any different from a GDP perspective than the impact of the concentrated spending of a 40 yr old with a dependent child? Again, I understand that the rate of overall population growth matters, but do we need to be so stressed about the aging component of it? Do we fear that robots are coming, or do we fear that they won't?

20% of the total 3,800 employees working in the clinics in her area are ‘unemployed’ in this manner. More still are home on ‘disability’ because their doctor said that their pre-existing conditions put them at an elevated risk for Covid-19

I didn't mention that. These 'unemployed' people are still getting their health insurance covered by the company. Also, the company is paying them negative-PTO, and allowing them to accrue negative 40 hours every other week. And they didn't put a limit on it. So this 'unemployed' person is: 1). collecting state unemployment benefit 2). collecting 50% of pay directly from the company (and accruing negative PTO to offset it) 3). still covered with employer's health insurance coverage 4). getting an additional $600 per week from the US government And if they leave their job after all of this, the employer can only recover the negative PTO in small claims court, but with a $500 corporate attorney, it just won't be worth it. Some of these employees who are doing this are staying home because they have a 17 yr old at home. It isn't legal for the employer to ask!

I got a $1,700 check, and I don't work anyhow. My wife works and got only a $1,200 check. That was a fun look she shot me when she realized this. I think it's called the Employment Development Department in California that set up the rules that are allowing a lot of Californians to collect unemployment benefits simply because, and due to COVID, their child's daycare closed, and they cannot come in to work even though their employer wants them to. So they are reported by the state of California as 'unemployed': Fired? No. Laid off? No. Unemployed? Yes! Who understands the unemployment number? I find it to be a confusing number. My wife works in HR at a large healthcare company and in some areas as high as 40% of the staff won't come in to work for this reason, and adding the $600 weekly check on top meant that they were paid better to stay at home 'unemployed'. Now that schools and daycares are allowed to operate again, some have come back to work. But school is out for the summer and many are still staying home, arguing that their daycares haven't reopened (and some never will). To be clear, their employer has been begging them to come back to work. They are instead enjoying time with their kids.

The operative word here is 'percentage'. The US population is growing. If you take a simple example of 5 people in their 40s, and then add one more person aged 80, you now have 6 people and the percentage of the population that is spending is shrinking. So what? It takes more spending to support 6 people as compared to 5. Right, but now you are assuming a lot and that goes back to the population pyramid which basically negates that simple example. https://www.census.gov/library/stories/2019/12/new-estimates-show-us-population-growth-continues-to-slow.html https://www.npr.org/2019/12/31/792737851/u-s-population-growth-in-2019-is-slowest-in-a-century I haven’t assumed anything, I believe that you have misunderstood me. I have previously stated that the age 25-40 demographic is larger than the age 40-55. There will be more peak spenders, not less, and we will have an increase in the number of elderly who spend, albeit at lower levels. https://www.federalreserve.gov/econresdata/notes/ifdp-notes/2016/effects-of-demographic-change-on-gdp-growth-in-oecd-economies-20160928.html I turned to this today and I see that in Figure 4 it is projecting outcomes for 2010 and onward, and it shows that the shifting demographics have thrown their hardest punch over the past 10 years. The drag on GDP growth is declining -- it literally projects that in one of the Figure 4 charts where it points to 2015 as the year of the most significant demographic drag on GDP. Going forward it gets easier from here. These are the US charts I'm singling out. After making it through the strongest of the demographic headwinds, and not seeing deflation, these charts infer that we'll be less at risk with the headwinds abating over time from where we are now going forward.

One explanation is that new household formation is not the same as population growth. New household formation was relatively depressed for a period of time as society transitioned to kids staying at home longer before moving out. There would be a relative acceleration of new household formation if that trend were to stall or reverse.

Probably somewhat trolling. I am afraid that liberals are going to ban anything they don't like as "hate speech" though. As I pointed above, banning flags of traitors and groups that committed atrocities are quite common and not brought to you be raving "libruls". Yes, but that's only because the union won. If the confederacy had won, we would be the "traitors." Indeed, if the Nazis would have won WWII, they would calling our side for the "atrocities" too. Trump reminded us of what we used to do to traitors in the old days... and now the flag of traitors flies at his rallies.

The operative word here is 'percentage'. The US population is growing. If you take a simple example of 5 people in their 40s, and then add one more person aged 80, you now have 6 people and the percentage of the population that is spending is shrinking. So what? It takes more spending to support 6 people as compared to 5. Right, but now you are assuming a lot and that goes back to the population pyramid which basically negates that simple example. https://www.census.gov/library/stories/2019/12/new-estimates-show-us-population-growth-continues-to-slow.html https://www.npr.org/2019/12/31/792737851/u-s-population-growth-in-2019-is-slowest-in-a-century I haven’t assumed anything, I believe that you have misunderstood me. I have previously stated that the age 25-40 demographic is larger than the age 40-55. There will be more peak spenders, not less, and we will have an increase in the number of elderly who spend, albeit at lower levels.

The operative word here is 'percentage'. The US population is growing. If you take a simple example of 5 people in their 40s, and then add one more person aged 80, you now have 6 people and the percentage of the population that is spending is shrinking. So what? It takes more spending to support 6 people as compared to 5.

Greg, I don't need a thesaurus to know you are a racist. But just so are fully aware of how racist this word is: "'This word is our N-word': Indigenous teacher asks Urban Planet to drop racial slur" https://www.cbc.ca/news/canada/new-brunswick/offensive-term-remove-urban-planet-1.5305540 Does he also chew with his mouth open? Is consideration of others a 'Liberal' value?

Mr. Napier—who has spent two decades worrying about deflation and who wrote a book about major market slumps—now predicts inflation above 4% next year in developed markets due to government loan guarantees. Governments, he thinks, have finally found a way to ensure that commercial banks lend: promise to cover bad debts. Heads, the banks collect the (slim) interest; tails, the government ends up with the losses. Of course banks will lend. “It’s pure politicization of credit,” Mr. Napier said. “This is the magic money tree.” https://www.wsj.com/articles/if-inflation-is-coming-the-market-isnt-ready-11592305397?mod=hp_lead_pos11

There are more people now in their 30s than in their 40s. And there are more in their 20s than in their 30s. I think your concern would get my attention if the population in their 40s were larger than the coming waves. https://www.visualcapitalist.com/us-population-pyramid-1980-2050/ And? An army of people being highly paid to push wheelchairs around and operate dialysis machines? Not only are the younger generations going to be working their full-time jobs, but they will have a second job at the senior center to look after the growing elderly population. Will labor markets be good/bad for the younger generations who struggled over a great part of the past 15? Where does the army of robots fit into the population pyramid and productivity? That is mostly sarcasm, but intended to point out that it's tough to make long forecasts.. I think you are stressing one factor too much when it is multivariate.

There are more people now in their 30s than in their 40s. And there are more in their 20s than in their 30s. I think your concern would get my attention if the population in their 40s were larger than the coming waves.

First, I honestly don't have an opinion about the population period. So much is muddied. For example, where does "the lost generation" play into this? Not the WWI version, but the one financially devastated this century. Just go to this site or any population pyramid site and contrast US, Japan, and India. https://www.populationpyramid.net/united-states-of-america/2020/ "the lost generation" is just another factor. The age demographics are the issue on what percentage of the population can be productive in society. So the biggest pig in the python since the baby boomers is now aged 20 to 34. Why is that worrisome from a demand for loans standpoint? Over the next decade, won't they be having kids and spending? To anyone who hasn't had a child, spending is what occurs after you have one.

Fair enough, but if there is 5% ROTCE (your numbers) a $12 stock price is a 12.5% earnings yield. If the US economy is turning Japanese, does that make sense when the Japanese stock market has traded at less than a 5% earnings yield for a couple of decades? Why not 14x earnings when the overall market P/E exceeds 20x in a no-growth disinflationary or mildly deflationary environment? I don't think that is the experience of Japanese banks but I'd like to understand why. Did they hoard additional equity in order to buffer against recession (and more cushion is needed with a tight NIM)?

First, I honestly don't have an opinion about the population period. So much is muddied. For example, where does "the lost generation" play into this? Not the WWI version, but the one financially devastated this century.

Sure, while they were running off the GFC. And after 7 years passed... Today there isn't a GFC book of loans to run off. Only COVID-19 exacerbated recession, the end to the severity of which is a vaccine away. Why were the loan to deposit ratio so out of whack for the banking system? Because of regulations or lack of quality loans to be made? We don't know how many quality loans there are to be made 7 years from now, but we do know that we have been in a tough regulatory environment the past 10 years and there is no appetite to reverse it today.

I doubt that anyone on the board thinks only of the one scenario that occurred. It does, however, answer much of your questions. The stock isn't at $12 because yours is not the only outcome that people are thinking about, and the stock is not at $40 because the positive outcome is not the only outcome that people are thinking about. Your negative potential outcome and the poor environment of today has always been in the future. Today it is being considered in the pricing to a greater extent, and we don't know what will happen going forward.

Sure, while they were running off the GFC. And after 7 years passed... Today there isn't a GFC book of loans to run off. Only COVID-19 exacerbated recession, the end to the severity of which is a vaccine away.

And that was the reason given for why things would not turn around after 2008.

Look at BAC which has TBV of $20. BAC earned $2.75 in 2019, and $2.61 in 2018. Why are you saying 10% when this looks like 13%? JPM did even better. These were not the best NIM environments as you've pointed out. Seven years from now, why can't WFC do as well as BAC has been doing over the most recent pre-COVID years?

To spice it up, suppose they earn 0% for the next 7 years. At $12, that will reward us with returns of 20% annualized for the next 7 years if the overall situation makes it back to a reasonable one by then. By reasonable I mean a 13% ROTCE and 13x P/E by 2027. That's well beyond historical returns, and looks more like equity-option returns but without strike or expiry risk. Based on this scenario, $12 does not look like the appropriate price to me if one assumes 5% returns on equity for the next 5+ years..

To address this other part, here is what I think: the banks were earning enough to support current stock prices or much higher until COVID hit us. And that occurred despite Europe and Japan being in worse situation back then just as they are now. That's pretty much the end of my thought on that. The other thing I'd add is that each and every time we hit one of these recessions, it takes little time before I see people coming up with complex book-smart justifications for a very long and sustained period of gloom. It is always backed by the "smart money", and the reasoning looks sound,... and each time when the economy turns around nobody could have expected it. I'm not going to debate you, it just doesn't matter IMO because I'm not going to justify my investment decisions based on this kind of forecasting. However you should do so if you think it is necessary and I won't talk you out of it, but I may ask questions from time to time.

At mid-teens, you are suggesting a P/E of 10x where the bank is making a 5% return on tangible assets. Let's say that occurs, and they earn only 5% on tangible. Suppose further that they plow it all into a combination of buybacks and dividends, and the investor in this hypothetical scenario chooses to reinvest all dividends into more shares at 50% of tangible book. In this situation the investor is making a 10% annualized growth in his share of the bank's tangible assets. One day, our investor wakes up to the news that the economy has righted itself somewhat and other developments on the cost cutting side have yielded some fruit. Now the bank is earning a 14% return on tangible assets. Or merely a 10% return if you want to be more conservative. Why is the the right price in the mid-teens if at such a price you make a 10% return while things suck, and then much more later on with all this future upside potential when things just get back to middling? That's a high return for a deflationary environment, haven't historical market returns been a lot lower than 10% real? Are you expecting significantly less than a 5% return on tangible equity when you say it's worth mid-teens? EDIT: I am referring to ROTCE above.