Three Demographic Arguments
- The number of people turning 50 in each country dictates the economy over the long haul. Economist Harry Dent has warned for years that the number of people turning 50 dictates eventually where the economy goes. He wrote about This in his book The Great Boom Ahead. The basis of this being when people turn 50 they spend more than at any other time in their lives and consumer spending goes up and pushes the economy ahead. He correctly predicted that after 1990, the demographics in Japan turned would turn unfavorable and there would be a tidal wave of assets leaving Japan for countries that had better demographic outlooks like the United States. He points out that our demographics will turn increasingly negative with the baby boomers moving into their 60s and 70s over the next 15 years, just like Japan did whereas other countries are just entering the best part of the cycles.
Every month, Harry Dent reminds me in his newsletter that any day now the market will go down because the number of people turning 50 is going down. He’s been wrong for number of years now because of a couple of things. The last newsletter talked about the big bubble. The mass amounts of government stimulus, the Federal Reserve printing over $4 trillion of cash and investing in government bonds and other things, and the Federal Reserve keeping interest rates at zero allowing private individuals to borrow huge amounts of money at low interest rates are all created an investment bubble Harry Dent did not figure into his equations.
- Technological innovations allowing the rest of the world to catch up. Hans Rosling created the website gapminder.com . In his research, he concludes that because of the spread of technology and the speed of knowledge moving across borders and the movement of free ideas across the world, that the rest of the world is catching up to the established countries at a rate for greater than anyone would have thought of even 10 years ago. Based on his research, he says the rest of the world will catch up in short order and he believes that more people will enter the middle class in the next 10 years then the rest of the history of the world combined.
- Urbanization improving individual’s income and increasing a country’s standard of living. Getting a group of family together to have dinner somewhere is stressful enough. Try moving 250 million people! From 2015 to 2020, China hopes to move 100 million people from the country's farming regions into cities. By 2026, it hopes to move 250 million. This was documented in an article written by Chris Weller in the publication Business Insider. The article was written on August 5, 2016 and documented how by 2020 China wanted to move 100 million people from the farm to the cities and by 2026 over 250 million people! So why now? Because China is tired of exporting and investing. It wants to bring the world's economy to its doorstep. China has a plan. "Domestic demand is the fundamental impetus for China's development," the plan says, "and the greatest potential for expanding domestic demand lies in urbanization." That’s a city the size of Denver Colorado springing up every 10 days for a ten-year period!
The effects of urbanization are best explained by J.P. Morgan in the graphs below. They talk about the urbanization rate of countries around the world. The countries with the higher urbanization rates tend to have the higher income per person. That’s because as people move to the cities their income goes up significantly. There are 7 billion people in the world and roughly 4,000,000,000 of them live in Asia. Look at all the new middle-income people that will be created from this region alone that will be happening in just the next 12 years!
- The bottom line. I have been preaching the three different demographic models for the last couple of years now. The stock market gains have not reflected the true economic growth in those regions. I am confident that the worldwide economy is growing very well due to these three different demographic realities. I’m also confident it will continue to do so for the next number of years and the markets will eventually reflect those realities.
The opinions voiced in this material are for general information and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing, including stocks, involves risk including loss of principal.