Generation Politics

Baby Boomers Versus Millennials

A couple of articles wanted to talk about the generational demographics and their impact on the economy so I think we'll have a look at them today.

The first was in the SMH which characterised the future as a conflict between Baby Boomer interests and Millennials.

Millennials have eclipsed baby boomers in the US, in terms of raw population numbers, but not yet on spending power. At some point this imbalance between these two generations is going to correct itself. 

Yet some investors aren't sitting around waiting for that to happen. Like Denver-based Marsico Capital. On a recent visit to Australia, Marsico portfolio manager Brandon Geisler named the demographic shift that will see millennials rise and baby boomers reach the "backend of their spending curve" as a significant theme underpinning his investing.

"If you think back to the 1990s, what was growth? Growth was technology [stocks], but it was also retail and banking, because you basically followed this demographic and you rode them up. The baby boomers, they levered up, they bought a bigger house, they bought two cars. And now the reality is ... they are downsizing," he told Fairfax Media.

The boomers are still spending of course, but on things like healthcare and travel. That has prompted Marsico, which owns a significant position in ASX-listed Dominos Pizza, to buy into stocks like Norwegian Cruise Line, biotech company Amgen and robotic equipment maker Intuitive Surgical.

"Similarly, we ask ourselves all the time what is that [under-35] demographic really interested in? Because that's going to be the next wave," Geisler says.

It's well documented that millennials prefer to buy experiences rather than things: whether that is reflection of their comparatively paltry spending power or not, they are far less interested in brands and material possessions than their forebears. They spend a lot of time on Facebook (one of Geisler's biggest bets) and love travel (which helps explain a stake in UK budget airline Ryanair).

It's kind of curious that this refrain keeps coming up that Millennials prefer to buy more experiences than things. I know this is anecdotal but the Millennials I know don't seem to be all that more biased towards experiences over things, any more than Baby Boomers I know disavow experiences in favour of things. I've known plenty of Baby Boomers who have disavowed materialism so it's hard to imagine the difference is clear cut. 

I might posit that the apparent preference that comes up in surveys that says Millennials prefer to spend money on experiences than things is a protest at the fact that Millennials have much less money to spend on things, and given the options, they end up with the stated preference of buying experiences. Certainly, if you are making investment choices, you might look at service providers than goods manufacturers in the future, but there are plenty of problems even with that characterisation. 

The second was over at Zero Hedge where there's always a whiff of paranoia. Still, it's probably more pertinent to have the Millennials describe their situation to get a better grip on what motivates them, and what this means.

In sum, millennials’ inflationary basket isn’t as simple as weighting goods within large standard components like food, housing, transportation, and entertainment. Student loans, obviously not directly in the Consumer Price Index, account for one of our largest monthly payments. We therefore can’t afford a house, and a lot of us live with our parents as rental costs continue to climb. Many also can’t afford a car, in which Uber proves especially helpful. That’s why we depend on services that provide access to goods without requiring ownership. This keeps expenses low and convenience high. We care about what our friends think and have serious FOMO (fear of missing out), so we’re less reluctant to save and more inclined to travel or buy new clothes when we can. Fortunately, however, technology and startups continue to bring costs down as we benefit from each other’s contributions online and in the sharing economy. In this sense, we are more privy to the deflationary impact of technology and services, in contrast to our parents’ experience with inflation of physical goods, such as food and gasoline.

The gist of the article at Zero Hedge is that the Millennials are, through restricted choice, embracing deflation. So.... are the demographics really at stark conflict?

The most interesting way this is playing out is in the current democratic campaign. Hillary Clinton is the choice of the establishment and beats Bernie Sanders in the above-50 age category, which happens to be the lower limit of the Baby Boomers. Sanders is dominating the under-50 set, which means he's winning the Gen-X and Gen-Y/Millennial vote, and this trend becomes more pronounced as the age group nears 21. This Democratic preselection is the very generational conflict in close-up.

It's interesting that it is not a Gen-X or Gen-Y politician who is garnering these younger votes. Instead it's a man who is a veteran of the 1960s civil rights movement and other long-forgotten battlefields of political activism. Hillary Clinton is still the poster child of the Baby Boomer generation, just as her husband ushered in the generational change of Baby Boomer impact on politic back in 1992. Their constituents are necessarily who they are. Given that the Millennials outnumber Baby Boomers and if you add in Gen-X, it would seem Hillary Clinton's candidacy is in great trouble. This might be the last US Presidential election where the Baby Boomer voice carries the election, and it might not even work out that well given the numbers.

In that light, Michigan going to Sanders today might be a sign of things to come. Yes, Hillary Clinton is about 200 delegates ahead, but because all the Southern states are done, it also means her big guns have fired. From here on in, the advantage goes further towards Bernie Sanders' support territory as well as demographics. We'll see if that 200 delegate lead really holds up. The coming months may well show it's just not enough. And should Sanders go all the way on the back of his support, it's probably curtains for the Baby Boomer block vote holding massive sway over American politics.