Listen up, investors: The problem with trying to make America great again is that you can't make it young again.
Until someone discovers a miracle rejuvenation formula, the nation's greying workforce is one reason the current market surge looks overdone.
Bond yields have soared around the world in the days after Donald Trump's surprise election victory, while prices for stocks and metals have climbed on speculation that growth is set to pick up speed.
The president-elect has galvanized markets by vowing to spend a trillion dollars on infrastructure over the next decade while stripping away regulations that hamper business.
But while Mr. Trump's promises are the stuff of some investors' dreams, they ignore a few practical hurdles, such as the challenge posed by Father Time.
In a recent report, Moody's Corp. drew attention to the rapid slowdown in the growth of the prime-age workforce. The credit ratings agency calculated that the number of working-age Americans will inch ahead by only 0.5 per cent a year over the decade ahead.
Even factoring in productivity gains, gross domestic product will struggle to grow 2 per cent annually between now and 2026, Moody's figured. That would be far below the customary pace in the quarter-century before 2006, when the work force was growing rapidly and GDP was expanding at an average of 3.2 per cent a year.
"The impossibility of making America young again renders it all the more difficult to make American great again," Moody's chief economist John Lonski wrote.
He pointed out that the aging trend is not just about a slowing number of new workers. It is also reflected in a rapidly increasing percentage of employees who are 55 years old or more.
The past few years have indicated a strong link between an aging workforce and lower bond yields, perhaps because older workers are less eager to borrow. Lower demand for loans drags down borrowing rates, everything else being equal.
"An aging work force weighs against a much higher benchmark Treasury yield," Mr. Lonski reasoned.
He disagreed with projections that the yield on the benchmark 10-year U.S. Treasury note will move up to between 3 and 5 per cent.
If his logic is right, the 10-year Treasury offers tempting value after its recent pummelling.
Bond prices move in the opposite direction to bond yields, so as sellers have dumped the bond in recent days, its yield has surged from below 1.8 per cent at the beginning of last week to above 2.2 per cent on Monday – a huge move in bond market terms.
In the event that Mr. Trump's infrastructure pledge fails to stimulate the economy as much as investors hope, yields could drop back and bond prices may rise back near their old levels.
How likely is the president-elect's plan to disappoint? It's "no game changer," warns Derek Holt of Bank of Nova Scotia. In a note, he cautioned that markets may be getting ahead of themselves.
The promised $1-trillion (U.S.) in infrastructure spending is slated to be dispensed over 10 years, he noted. That suggests the annual spending will be on the order of $100-billion – a relatively small amount compared with the $19-trillion size of the total U.S. economy.
The plan might boost the economy's growth rate by half a percentage point in its initial year, he calculated, but even that modest increase is open to doubt and delay.
Among other issues, a new administration will need time to approve projects and sign contracts, so it's unlikely that any money would be spent until 2018.
When wallets finally do open, the effect of the new spending on growth will last for only a single year. After that, spending the same amount each year just maintains the size of the economy rather than adding to further growth. A sustained rise in the growth rate can only be accomplished by exponential increases in spending.
Investors who are counting on the infrastructure plan to fuel big gains in raw materials prices should think again, Mr. Holt warned. Out of the $100-billion or so in annual spending, much will be spent on wages and only a portion will go to buying materials.
Given the size of global commodity markets, "the infrastructure plan will not change the extent to which commodities remain driven by China and the broad emerging markets versus the relatively mature U.S. economy," he said.