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On Private Credit, SoftBank & Earnings Breadth
Today, Melissa revisits the disruption of the private-credit market. The potential problems she identified in March have not escalated and don’t signify financial system risk. But AI is disrupting the industry in bad ways and good. And investors are becoming painfully aware of the gating measures designed to protect investors by preventing forced liquidation of funds but also blocking the exit doors. … Also: Willam discusses the fall and rise of SoftBank, now Japan’s largest company, and its founder. … Finally, Joe reports that analysts’ estimates have kept marching upward this year, instead of falling as usual, and that the happy trend is broadening to more sectors.
Booming Number Of Retiring Boomers Supports Consumer Spending & Depresses Saving
The Doomsayers have long warned about one specific vulnerability of the US economy, i.e., the sustainability of consumer spending growth. Since July 2024, real consumer spending has outpaced real disposable income growth on a y/y basis for 22 consecutive months. Spending is up 4.1% over that period, while disposable income rose just 1.1%. The widening gap has been filled by declining personal savings. The personal savings rate fell from 5.3% in July 2024 to 2.6% in April 2026, its lowest reading since June 2022. We understand why this seems alarming. Yet while the Naysayers have been sounding this alarm for some time, the latest Redbook same-store retail sales index (excluding food services, gasoline, and autos) is up 9.1% y/y for the week ending June 5, far above the 2025 full-year average of 5.8%. Consumer spending continues to grow at a solid pace. Unlike the depressing K-Shaped Economy story promoted by the pessimists, our G-Shaped Economy hypothesis explains why consumer spending should continue to grow. We are focusing on the generational age profile of consumers. The sizeable Baby Boomer cohort is retiring. They are no longer earning wages and salaries, nor are they saving for retirement. But they are continuing to spend their record net worth on themselves. They are also providing some financial support to their younger relatives. That's been our narrative for quite some time. We recently found some additional Census data to support it: (1) Number of households by age. Census Bureau data show that the Baby Boom generation remains the dominant demographic force in the US economy. From 1946 to 1964, 75 million of them were born. The youngest of them is turning 62 this year. So they are mostly 65 or older. In 2024, there were 39.3 million households headed by these seniors, by far the largest single age cohort (chart). (2) Money income by age. As households age, their incomes rise through their peak-earning years. Baby Boomers are mostly past their peak-earning years. The Census Bureau reports that the mean money income for households headed by someone 65 or older was $87,300 in 2024, well below the $155,900 recorded for households headed by someone aged 45 to 54 (chart). This income drop reflects the shift from wages and salaries to retirement resources and explains why an aging population exerts structural downward pressure on aggregate income growth: An increasing share of the population moves to the lower-income 65+ cohort. However, when mean household income is multiplied by the number of households in each age group, the 65-and-over cohort now generates nearly as much total income as the peak-earning cohorts (chart). This confirms that there are now so many 65+ households that, even with lower per-household money incomes, their aggregate economic weight is enormous and still growing. Nevertheless, their disposable income growth is slowing, and they will save less than they did before retirement. (3) Wealth and saving. Lower retirement income is not alarming since Baby Boomers have nearly $90 trillion in net worth to spend (chart). The Silent Generation, born between 1928 and 1945, has a net worth of $20.6 trillion, more than that of Millennials. Baby Boomers are next in line to inherit it, which will further boost their spending power. When net worth is high relative to income, Americans save less and spend more (chart). This is known as the Wealth Effect. Rising equity and real estate prices have inflated Boomer balance sheets, while their retirement has simultaneously slowed aggregate disposable income, pushing the net worth-to-income ratio sharply higher. Most retired Boomers are dissaving: Their income no longer covers their spending. More retirees means more dissavers, pulling the aggregate saving rate lower. Yet spending holds up because Boomers have ample wealth left to spend. (4) Retirees. The evidence that more Baby Boomers are retiring is unambiguous. The 65-and-over civilian population has surged from roughly 40 million in 2011, when the oldest Boomers first turned 65, to 64.7 million today (chart). The number of individuals aged 65 and over who are not in the labor force has risen in lockstep. The youngest Boomers will turn 65 in 2029. The number of retired workers receiving Social Security benefits now equates to 19.5% of the working age population, a record high (chart). Moreover, their ranks increased by 1.85 million in 2025, the strongest annual increase on record (chart).
On Challenges Facing Europe & Canada
The Eurozone is grappling with stagflation, and the ECB is determined to subdue inflation with rate hikes, which it failed to do aggressively enough in 2022. But the stakes are higher today, the decision complicated by trade/geopolitical pressures and uncertainties, and tightening more than the struggling economy can take is a risk. William discusses the challenge facing the ECB and the potential fallout from rate hikes. … Also: Canada is determined to wean itself off exports to the US, but that’s easier said than done. The vast US market absorbs the majority of Canada’s exports, and the resilient American consumer has been lifting Canada out of an economic morass.
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