Cat Herds

Sometimes folks can act together in rather interesting ways for long periods of time.  During the Meiji era in Japan, following the Empress’ lead, blackening ones teeth was quite the fashion statement.  It remained so for hundreds of years after her passing.  Madam Pompadour, Louis XV’s famous mistress, wore her eponymous hair style which even Elvis chose to adopt.  The pace at which such trends get mainstreamed seems much quicker than the rate at which they fade.  Consider Astrid Kirchherr’s inversion in the 60s of the pompadours affected by those young lads from Britain.  Almost in the blink of an eye, the mop top was all the rage, leading to an era easily identifiable (particularly the 70s) in any photo taken of that period.
The Federal Reserve is constantly trying to create a model of human behavior which can be applied to the general field of economics.  They are not alone.  Anyone who can do so successfully will have a bright golden future.  I wouldn’t hold your breath though, given the well recognized madness of crowds and such.  Back in 2011, the Federal Reserve published a paper called “Boomer Retirement: Headwinds for U.S. Equity Markets?”  They answered the question with a definitive Yes!  They demonstrated quite compellingly why the U.S. stock market would trend downward for decades.  By one popular statistical measure however, equity prices have moved up some 40% since their words of caution were published in August, 2011.  That’s life.
Perhaps the problem with such forecasting models can be laid to behavioral expectations that Baby Boomers will behave in a normal fashion.  When have the Baby Boomers ever acted normally?  Predictability is not their hallmark; you would be better off trying to herd cats.  The Fed’s article is worth a read (here’s the link), but I believe we need to follow the financial markets wherever they may obstinately lead rather than ever hoping to somehow corral the animal spirits which drive them.   (by J R)