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Aging Series: Hugh Johnson And The Economics Of Aging

According to the U.S. Senate’s Special Committee on Aging, the number of Americans over the age of 55 in the labor force will reach 42 million in 2026, or nearly a quarter of the nation’s workforce. That’s compared to fewer than 36 million in 2016. Now, that data was compiled before the COVID-19 pandemic, involving a virus that has led to more serious complications and mortality when contracted by seniors. As part of WAMC's special series on aging and to better understand how the pandemic and the reactions to it have impacted the economic outlook for older Americans, Jim Levulis sat down with a familiar voice on WAMC's airwaves – Hugh Johnson, chairman and chief investment officer of Hugh Johnson Advisors in Albany. 

Levulis: Has the COVID-19 pandemic, and specifically its health impacts, changed how you look at the economy?

Johnson: Well, yeah, it's changed a great deal of how we look at the economy. Of course, we try to quantify what the outcome is going to be. And we've seen some swings in the economy that we've never experienced before. It's hard to even believe these numbers. But the contraction in the economy that we saw in the second quarter, which was 30%-plus, and the expansion, we're going to see, as a recovery starts to take place in the third quarter, that'll be about a 30%-plus number. And going forward, the numbers are just extraordinarily large. That's one thing and obviously every step along the way we're trying to ascertain or to figure out what consumers are going to do. We know that their savings built up, we know that they're taking that savings down by spending. Many people, of course, don't have jobs and so they're spending that money. We're trying to measure that carefully to have that sort of impact on the economy. We're on the basis of that we and I should say we in the government in Washington, are trying to determine if more help should be on the way to consumers. Do we need more stimulus? You see that as a very topical, very, very important. The big factor, the number one variable that's driving everything we say and quantify see in the economy is driven by the pandemic. It's driving all our thinking about the economy,

Setting the health impacts of it aside, have you ever seen anything as far reaching into the different sectors of the economy as this pandemic?

No, this is something I haven't experienced. I think you have to really go back to well, you have to go back to the Spanish Flu in 1918-1919, to see anything that's, you know, even close or somewhat equivalent, you have to go back to the Second [World] War, you don't see you don't see extremes like this, you never see extremes like this, you don't see growth rates and contractions in the economy at 30%-plus, the most we usually get or something in the neighborhood of, say one and a half to three and a half percent. So when you get to move a 30% in the economy, you know, it's extreme. And the second factor, which is implied by your question, which is really important, is that it affects different sectors of the economy differently. You and I both know that leisure and hospitality, airlines, things of that sort have been seriously impact. And I'm not talking just about output or the amount of business they're doing. I'm talking about employment in those industries. The swings we're getting in employment for example are really hard to even fathom. You get a decline in the month of April of 20 million-plus, and then we start to recover it and we recover about half of it in the remainder of the second quarter and in the third quarter. We're talking about extraordinarily big numbers. 20 million plus decline in non-farm payroll employment, when ordinarily we might get plus a 200,000, maybe minus 200,000 employment gains or losses in any given month. So just imagine it 20 million, and that's course as a result of shutting down the economy. So I don't think you'll ever see, we've ever seen, I haven't ever seen, and I don't think I hope I never do see it again, this kind of extreme in all of the economic variables that we monitor and watch every day.

Has it changed your financial advice that you give to clients?

In a lot of ways, yes it has, but it's in sort of strange ways that it has. I don't like to look at silver linings when obviously we're living in such dark times. But there are silver linings and the silver lining is simply this is that I saw and I'm not the only one that saw this very sharp decline in stock prices, February through March of 2020. And stock prices got down to levels where we do a lot of calculations, extraordinarily undervalued, reflecting the extremes in the stock market reflected the extremes in the economy. And the market got down to be almost 40% undervalued as I do the numbers now, who knows if I was right or wrong, but it looked awfully cheap. So yes, you bet that affected me. And it's particularly affected me when I saw a lot of stimulus kicking in. Not only stimulus from the federal government in Washington increasing payments to people that are unemployed, but also the Federal Reserve. The Federal Reserve did a great deal, obviously reducing short term interest rates from one and a half percent down to zero. So I saw the stimulus, I saw the sharp decline in stock prices. And I looked at that combination and said to myself, and I think a lot of others said this, this looks yes, it's a terrible situation. But it looks like there's opportunity here. And so we did become fairly positively inclined or positive on the stock market. And the stock market did start to start to recover. It started to recover. The question I get, Jim, almost every day is how do you reconcile the performance of the stock market with the performance of this world of ours generally, in the economy in particular? And the answer is stock buyers or good investors are always looking ahead. They're never looking at the current state of affairs. And when they looked ahead and they saw the stimulus and they saw some of the signs that it would start to take hold that it would actually end up in a recovery in the economy in earnings, they started to buy stocks. So the performance of the stock market, our advice to our clients, was to maintain a meaningful allocation to equities, despite the fact that this world of ours was so dismal. And that turned out to be the right thing, stock the stock market or investors collectively, were right, once again, and we are seeing that recovery.

Now, generally speaking, and this was happening before the COVD-19 pandemic, people are working longer well into their 60s, 70s and beyond. Has that changed the financial advising industry?

It's changed in this way. First of all, there's an awful lot of uncertainty. There's a lot of volatility. There are many questions and very few answers. And I'm not just referring you know, there's obviously the election. There's the impact of the pandemic, we think we hear things talk about a second wave almost every day, we ask ourselves, the question is the second wave going to have as large an impact on the economy, as we saw in March and April? Big question. Lots of other questions to include. What's going on in Europe, where we see a significant surge in the number of cases? Are we going to experience the same kind of thing, and it looks like we are a second wave in the U.S. So there are lots of questions and very little in the way of answers. And that's caused the investors to call us to talk to us, elderly people and ask, ‘am I on firm footing?’ Everybody's a little bit worried about whether they're going to have enough money to fund in their last working years or their retirement or you name it, they're very worried. They're very worried about what's going to be the impact of the election and tax policy, the impact of the pandemic and its impact on the economy, on their investments. So they ask us to review it with them. In most cases, they're a little bit less concerned. It's interesting, a little bit less concerned about the economy. I think we've given them reason to be somewhat optimistic about prospects for the economy, not just for the third quarter that we've just been through, but for the fourth quarter and 2021 and 2022. Not just the economy, either its earnings as well. And they seem to be fairly comfortable with that prospect or outcome forecast.

Even before the pandemic, looking at those trends of people working into their later years past the average retirement age, 65ish. Has that had any impact on the overall financial advising industry?

Yeah, it has. But it's been in a way is you got to ask the question, ‘why are they working so long?’ And a lot of them were working longer, because they think they have to work longer, they have to work longer, work harder, get more money, build their nest egg, so to speak. So I see that a lot of times, it's they want to not only build their nest egg, but one of the, you know, sort of big fears that I hear from a lot of clients, is they say, if they retire at the age of 65, or whatever it might be, first of all, they say to themselves, look, the rates are now that I'm going to live a lot longer. I might live to be 90, maybe even a little bit older than 90 in some fortunate cases, and they're worried first of all, ‘do I have a large enough nest egg,’ but they're also worried about becoming bored, ‘what am I going to do?’ So they're starting to work longer. And first of all, in many cases, they work longer because they like what they're doing. In other cases, they work longer, because you know, they quite frankly, don't want to be bored. They don't want to sit home and watch television. And I hear that all the time. So we do see people working longer. And of course, part of that working longer, is building up nest eggs, and they pound away at us. Estate planning is a big part of our business. Now, it's become a bigger part of our business. It's not just advising individuals on what they should do with their portfolios, their stock and bond portfolios, how they should structure them, given their plans. But it's estate planning, which gets into a lot of very complex issues, particularly taxes. It's all become very complex. But clearly the focus of individuals and again, they're working longer, and part of it is they don't want to be bored.

Have you seen any indicators that people are deciding to cash in on their retirements, those nest eggs, now rather than waiting, having witnessed the devastating impacts of the pandemic?

I think they're concerned about it. And I think I do see in some cases, investors reducing their allocation equities because of the volatility of the equity markets. Not in many cases, so but I do see that in some cases, that they're worried enough, both about the impact of the pandemic, which is so uncertain, but also the outcome of the election, as I mentioned, and the implications that has for tax policy, I see investors changing, they're changing their portrait, some changing their portfolios, but more specifically reducing their percentage of the portfolio in equities or stocks. I see some of that. But for the most part, I don't see that for the most part, I see investors are holding the line and again, recognizing something really important. And that is recognizing that the chances are the odds are and I agree with this, that the returns from stocks are going to be meaningfully higher than the return for bonds. You know, one thing that they do look at as they know that the level of interest rates now as engineered by the Federal Reserve is low. If you ask yourself the question, ‘where can I get my best return for my stock market, just a reasonable return, not a big return, but just a reasonable return?’ They say I certainly can't get it from the bond market or the fixed income markets where rates are low. Maybe I got a chance if I buy some stocks, and they're taking the risk of buying some stocks, even accepting the fact that maybe given all the volatility and uncertainty, my return from the stock market might be 5%. But that's higher than bonds. And so they take that risk. And that's part of the reason why see we see the stock market doing so well. I hate to say it, but it might be the only game in town.

So not that many people saying, ‘Wow, this is a terrible pandemic. Look at this. I'm getting up in years, I have this nest egg. Let's call it now, let's just cash it out.’ Not that many people doing that.

No. And I think a big part of that, Jim, a big part of the reasoning there is the fact that they know they're going to live longer. And they're going to need a much bigger nest egg in order to take them through those years. And so they want to continue to not only have their nest egg, but to continue to build that nest egg in preparation for and I hope it's true of everybody, living a longer life.

Shifting gears a little bit, what do you think Social Security will look like in say, 20 years?

That's a tough one. It's clear that we're not on a positive pathway right now. It's clear that our liabilities are going to exceed our assets in our Social Security trust fund. It's clear that there are going to have to be some changes made. And I can't really guess, because there have been so many proposals on changing Social Security. My guess is we're going to have a retirement age in which is responsive to changing demographics at the retirement age, which is going to be higher than 65. And the benefits are probably going to have to, unfortunately be somewhat lower. Contributions maybe offset that by contributions being increased taxes, contributions, going to be somewhat higher. Something that I've thought about a lot and that is, you know, the way the trust fund is invested, it makes no sense. I know that deciding to invest in more adventurous, risky, financial assets is not going to go far. But that's what should be done in my judgment, and you just take a look at the long term performance of various asset classes. And you can see that the performance of other asset classes, not bonds, not fixed income, not government bonds, is so much more impressive. I know there's bigger risk, I know it's not going anywhere politically, but that's one of the changes I would try to get some policymakers to at least think about, or even not even just a small portion of it, I didn't think I would do a lot to help solve the problem to tell you the truth. But unfortunately, I'm probably going to be a lone voice calling in the desert for those changes like that.

And that's just because it is too, too risky.

Yeah, it's too risky, too volatile. And everybody’s afraid of it, everybody will point two difficult periods in stock market history, bear markets, and every now and then there are bear markets, and every now and then those bear markets dissipate the size of holdings, or the portfolio, and you bet that's very problematic if it’s the Social Security Trust Fund, which got to look at the long-term record. And the long-term record is extremely positive for the markets and reflects a long term positive outcome for the economy, the economy continues to grow, stops and starts along the way. And the markets continue to reflect that by going up with stops and starts along the way. It's the stops and starts that unfortunately, unnerved policymakers. And that's why that idea or thought is going nowhere.

Now, I'm using your words here Hugh, because when I mentioned doing this interview, you said it sounds fitting considering your quote, “no spring chicken.”

That's for sure.

So for our listeners here and I understand getting a little bit personal. How old are you, sir?

I'm 80.

And how long have you been working in the financial world? And to the theme of my earlier questions, why have you kept on working?

That's a really good question. I've been working in the financial business since 1966, I think is when I started. But you know, I grew up in a family that was in the finance business. My father was in the finance business, I really would say I date it almost to the day I was born. But I'm over 50 years at this and why am I can continue to do it. I need a job, Jim. And that's part of the reason. The other part of the reason, it really goes back to something that I if you want to talk about my personal attitude towards it, one of the things I've loved in life is philosophy. And this is really strange on my answer, unfortunately, is metaphysics. It's very complex. And it takes very complex configuration of variables. And it puts it together in a nice, consistent, comprehensive way. And that's really what this business is a lot about. It's taking an extraordinarily complex set of variables, and trying to understand these variables and understand how they work together and how they fit together and coming up with a nice, comprehensive, consistent conclusions on the basis of that. It's very challenging, but it's extraordinarily intriguing. It's very interesting, and I think if there's anything that's kept me doing this, it's an ongoing interest in the subject itself. It's really, really fascinating to see how it works and to continue to try to understand it, continue to try to completely understand it when you know, you're probably never going to completely understand it. But it's a fascinating industry, fascinating business. The other thing is, is that you're able along the way to help people. And I'll tell you it's really gratifying when and we have this all the time, and I don't think it's because of anything special about me but the markets have certainly helped for the last 10 years or so. But when you have people that are going to realize their dreams, when you're going to help them realize their dreams, which is to retire, to have a good life in retirement, to be able to afford to do all the things they want to do. I wish I could do it for everybody, but you can't do it for everybody. But for the vast majority of clients that we have, we're able to accomplish things like that. And, they're very happy and to see their gratification has a real positive impact on me. So I would say, positive impact on clients and a fascinating business.

How long do you plan to keep on working, then?

If you have a coin, maybe I should take the coin out and flip it. I don't know. I mean, you know, let me just say it this way. There's a lot of young people coming along, and young people coming along in our organization. And I fully expect that the young people are going to be driving our organization in the future, and they should have their chance. And I don't want to use the expression “I'll step aside” and let them have their chance. But you know, the truth is there comes a time in everybody's life when I think you do have to step aside and let younger people who are as ambitious as you ever were, and are certainly these days bright as I ever was, and are informed. You know this business has become interesting, but it's become very complex. And I find that some of the some of the things that are being done in the world of finance, some of the ways we're investing all of the kind of different asset classes, for example, real assets, private equity. We always talk about hedge funds, we talk about real estate, we talk about the number of different asset classes, things that are really interesting and challenging in this business. And so you've got to be really very, very well-schooled. You've got to spend a lot of time to learn all that. And quite frankly, some of those younger people really do understand it. The other thing I would mention, just in passing, is the importance of artificial intelligence and other technologies that are really progressive on the way things are done in this business, not just on the way you conduct your business, but on the way you invest. And it generates enormous interesting outcomes. And, so you have to be far along in technology, you have to be far along in your understanding of the complexities of finance and the different asset classes, you have to have a lot of energy, which means you have to be young. So there comes a time in my life and I think others’ that you have to sort of step aside and let those with the energy, take the ball and run with it. So I'm not answering your question, but you get the idea.

Has the pandemic at all changed your personal outlook as far as your career goes?

Yeah, a little bit. I mean, you know, made me think much more about my family, and spending time with my family. And, you know, so I'm trying to find ways to do that. Yeah, it has. It's been a real curveball, frankly, it's been a real curveball. And something I didn't expect. I've looked at financial market history since 1890. I studied it very carefully, as carefully as I can. There are three major pandemics in that period of time. Spanish flu, I didn't spend enough time or focus enough on those periods of time. I should have, I didn't. So you know, I wish I’d continue to study that and learn more about it. We use the expression of “a bolt out of the blue”, you talk about a bolt out of the blue, this has been a bolt out of the blue. Totally unexpected and very difficult to deal with, and lead to a little bit of frustration. But interestingly enough, I think that the basic rules of cycles that I've watched since 1890 still holds and it has been helpful in dealing with this one, and very helpful in dealing with this one. So there are some sort of timeless principles that do apply, and you just got to spend time and study them. But this one's got its differences, and it's pretty darn important.

You mentioned your family. Who's in that family?

Well, there's my wife and there's my daughter and my two grandchildren are twin boys in San Francisco. And that's the bulk of it, but I've got a Lots of sisters and brothers and they have their families. And, you know, the biggest difference now is we get together still, but we get together by Zoom. So it's a little bit different.

Absolutely. I think a lot of family, friends, coworkers are interacting that way now. In terms of life advice, what do you wish you knew earlier?

Ah, what I wish I knew earlier? Well, I think I'm happy with what I've known. I just think there's just no end to the importance of education, whether it's this business or any other business. I don't regret significantly, because I did spend a lot of time in my education. But I just don't think I spent enough time in it, I wish I'd spent more time studying and reading, I just never get enough. So that's one thing. The other thing is you know, sometimes, especially in our earlier years, we spent a lot of time on our business or our work. I think that quite frankly, that was at the expense of my family life. And if there's anything, I would say, I wish I'd probably spent more time at home with the family, and less time at work. I was pretty ambitious. And I love the business and I love working at the business. I think in some cases, I spent too much time and I wish I spent more time with my family. That's not a deep regret. But it is something that if I would have changed anything, I might have changed that. There are lots of other occupations which I, gosh, I dreamed about and would have loved if I could afford the education like lawyer. But you know, it's worked out really well. The thing that I'm very happy that I did do was to spend as much time working on a working on, I didn't finish my doctorate in philosophy, but working in philosophy, and especially logic and in particular logic, metaphysics, epistemology, these are very esoteric titles, shall we say, but it was basically the study of philosophy, which taught me how to think and you can apply some of the lessons you learned in philosophy to just about anything you do in life, and the importance of a liberal arts education. I'm one of these people that really is still maybe it's old fashioned, but a believer, a big believer in a liberal arts education. To go to college and to learn how to think to take English to take history, to take government, to take philosophy, to take mathematics, arithmetic, that stuff, those basic disciplines are so valuable. And a lot of people think you have to specialize. You have to study technology or computer science, you don't. And in fact, you not only don't, don't miss the important stuff, don't miss the important stuff that you get in English literature, philosophy, history, and I mentioned them, don't miss that because that's important to the quality of your life as well as your ability to succeed. There's plenty of time for graduate school and getting very good, very disciplined and specific in graduate schools. But before you get to graduate school, a liberal arts education is extraordinarily valuable, and I think almost indispensable. When we're talking to people, prospects for coming to work with our company. I always listen, I wait, I want to hear about their liberal arts education and what they've learned, how they’ve become good, critical thinkers, analytical and critical thinkers. They're going to learn what we do in our business. I know they're going to learn it. But having that ability to do good, sound critical thinking, I look for that. And you don't see it all the time unfortunately, these days.

Well, that education is certainly made talking with you interesting you over the years. You may have just answered it there, but financial or otherwise, you know, we've been talking a lot about in this interview folks near retirement age or getting up there. But for someone in their 20s or 30s, what advice might you have for them listening to this?

Well, the first piece of advice and I do give this advice to younger folks, is try the best you can to identify what you like. And one of the ways to do that is when you're going to school, college to pay attention to the courses you like and that you do well in and that might be a clue as to the general direction you might want to go. If you're good at government, you get good grades and you enjoy government, maybe you want to go to law school, who knows, it might be a clue. And the one thing I would encourage every young student is to spend some time having an open mind and thinking about what they really like, then once they've determined what they really like, don't give up on it. And I can almost assure you that the first four or five years of your employment or graduate school, but your employment, certainly, you're not going to like it. You're going to get the lowest job on the totem pole, and you're probably going to hate it. And you're going to want to change. Stick with it. Because in four or five years after you get through that initiated this sort of incubation period, you're going to learn, you're going to start to like it. And that happened to me. I was a member of the New York Stock Exchange, people would say, “Wow, isn't that wonderful.” And I was a trader on the floor of the New York Stock Exchange. But it was very, very clerical. And I didn't find it very inspiring. But in time, I understood how it all worked together. And it became fascinating, it became intriguing, and I started to really love it, and it took off from there. So identify what you like, try your best to do that. Stick with it for three, four or five years, give it a chance. And then see what you want to do, see what direction you want to go in. Don't give up on it. The other thing I would say is, you won't get much in the way of good direction on where you should go in life from your parents. You're different from your parents. You're different from your father. You're different from your mother, and you're going to be different. You're a different person. Recognize that uniqueness in what you choose to do in life. It may be something entirely different from what they have done or would encourage. Pay attention to yourself. That's so extremely valuable. That's what I would tell young people, and I do tell young people that.

Jim is WAMC’s Associate News Director and hosts WAMC's flagship news programs: Midday Magazine, Northeast Report and Northeast Report Late Edition. Email: jlevulis@wamc.org
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