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If Demographics is Destiny, then America’s Future Sucks
Desperate homeowners counting on a "V" shaped recovery in residential real estate prices to bail them out better first take a close look at global demographic data, which tells us there will be no recovery at all.
I have been using the US Census Bureau's population pyramids as long leading indicators of housing, economic, and financial market trends for the last four decades. They are easy to read, free, and available online at http://www.census.gov/. It turns out that population pyramids are something you can trade, buying the good ones and shorting the bad ones. These graphical tools told me in 1980 that I had to sell any real estate I owned in the US by 2005, or face disaster.
No doubt hedge fund master John Paulson was looking at the same data when he took out a massive short in subprime securities, earning himself a handy $4 billion bonus in 2007. To see what I am talking about, look at the population pyramid for Vietnam. This shows a high birth rate producing ever rising numbers of consumers to buy more products, generating a rising tide of corporate earnings, leading to outsized economic growth without the social service burden of an aged population. This is where you want to own the stocks and currencies.
2) Now look at the world's worst population pyramid, that for Japan. These graphs show that a nearly perfect pyramid drove a miracle stock market during the fifties and sixties which I remember well, when Japan had your textbook high growth emerging market economy. That changed dramatically when the population started to age rapidly during the nineties. The 2007 graph is shouting at you not to go near the Land of the Rising Sun, and the 2050 projection tells you why. By then, a small young population of consumers with a very low birth rate will be supporting the backbreaking burden of a huge population of old age pensioners. Every two wage earners will be supporting one retiree. Think low GDP growth, huge government borrowing, deflation, and a terrible stock and housing markets. If you are wondering why I am aggressively shorting the yen right now, this is a big reason. Dodge the bullet.
3) If Brace yourself. The US is turning into Japan. As a silver tsunami of 80 million baby boomers retires, they will be followed by only 65 million from generation "X". The intractable problems that unhappy Japan is facing will soon arrive at our shores. Boomers, therefore, better not count on the next generation to buy them out of their homes at nice premiums, especially if they are still living in the basement, and not paying any rent. They are looking at best at an "L" shaped recovery, which is a polite way of saying no recovery at all. What are the investment implications of all of this? Get your money out of America and Japan, and pour it into Vietnam, China, India, Brazil, Mongolia and other emerging markets with healthy population pyramids. You want the wind behind your investment sails, not in your face with hurricane category five violence. Use any serious dip to load the boat with the emerging market ETF (EEM).
4) Vietnam is a Paradise for Demographic Investors. Now that we have figured out that Vietnam is a great place to invest, take a look at the Van Eck Groups Vietnam Index Fund (VNM). The venture will invest in companies that get 50% or more of their earnings from that country, with an anticipated 37% exposure in finance, and 19% in energy. This will get you easily tradable exposure in the country where China does its offshoring. Vietnam was one of the top performing stock markets in 2009. It was a real basket case in 2008, when zero growth and a 25% inflation rate took it down 78% from 1,160 to 250. This is definitely your E-ticket ride. Vietnam is a classic emerging market play with a turbocharger. It offers lower labor costs than China, a growing middle class, and has been the target of large scale foreign direct investment. General Electric (GE) recently built a wind turbine factory there. You always want to follow the big, smart money. Its new membership in the World Trade Organization is definitely going to be a help. I still set off metal detectors and my scars itch at night when the weather is turning, thanks to my last encounter with the Vietnamese, so it is with some trepidation that I revisit this enigmatic country. Throw this one into the hopper of ten year long plays you only buy on big dips, and go there on vacation in the meantime. Their green shoots are real. But watch out for the old land mines.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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by three chord sloth
Curious, would you describe Peak Oil as Malthusian?
No. It'll be as important as peak wood was in England. It will be replaced, just as wood and whale oil were.
Peak wood in England? What is the link here?
Times are on global scale, not local scale.
Most local peaks if not all were bypassed by transferring from an outside.
Peak wood in England the same.
Now what outside on the global scale?
As a side note, anyone featuring peak oil as the demise of the whole humanity has the kind of answers he deserves, the survival nutsery.
Survival is such an analytical framework no failure can be achieved: as long as one survives, that is success. If no one survives, then neither failure or success means as the object origin of the problem disappears. No human beings, no human problem therefore no failure/success in solving them.
Huh???
Are you aware of the gap between the wood age and the coal age? It was hundreds of years.
Thank you. Seriously, thank you. If I have to refute one more line of Malthusian claptrap asserting the impending demise of all humanity based upon peak cheap oil and the supposed impossibility of paradigm shifts in agricultural production, I may just help some of them achieve their population targets... starting with them. I don't need to repeat anything you've said, because it's all here:
"It'll be as important as peak wood was in England. It will be replaced, just as wood and whale oil were"
Uranium/Thorium anyone? Geothermal exchange reactors? Tidal generators? Engineered algae? Solar thermal? Bueller? I realize that few of these compare with cheap oil... but if peak cheap oil is upon us, the aforementioned options become quite appealing very quickly.
On a side note, I'm also quite irritated with the notion that attempts to promote birth control within the developing world will somehow curb the portions of their populations residing in the lowest income brackets more effectively than improvements in education and general standards of living. Fear the Malthusians indeed, as they long for a stasis that defies the dynamism that characterizes our species and world; they climbed their ladder only to learn in horror that it was not the last.
There is NO SUCH THING as Peak "cheap" Oil.
Uranium and Thorium are ALSO subject to Peak conditions. All physical resources are.
There is a physical cap to the number of reactors a nation can deploy. France is already there. During heat waves, they must idle capacity in order to prevent heatsink temperature leading to a massive ecological catastrophe.
Standards of living = ENERGY consumption per capita.
As for this nonsense about "appealing," COST IS IRRELEVANT.
ALL that matters is EROI. Nothing else.
The Stone Age did not end for the lack of stone , and the oil industry will end long before the world runs out of oil says Sheikh Zaki Yamani , who served as Saudi Arabian country 's oil minister three decades ago .
Nat Gas, anyone? Bueller?
The transition may not be pretty.
Are you guys nuts?
Natural Gas ALSO PEAKS.
And its decline curve is like the side of a cliff.
The issue is EROI...
by akak
You need excess population for wars to grab other nations' natural resources. Low fertility has always been a trademark of a nation about to conquered by another with excess males to spend. China, with its male/female imbalance, comes immediately to mind when thinking of Japan. No natural resources in Japan, but you could ruin a trade rival, get revenge for WWII, and grab their young women at the same time.
I highly doubt the world's population is going to peacefully decline to the carrying capacity of the planet.
+100 - "Low fertility has always been a trademark of a nation about to conquered by another with excess males to spend."
The real demographic disaster in the U.S. is entirely unspoken by Madhedgefundtrader above.
The "core population" with an average IQ of 103 is fast disappearing, while a huge underclass with an average IQ of 85 is growing very rapidly. The predictable result is an elite that we see rapidly evolving into the corrupt latin american model, prancing around pretending to be "a party of permanent institutional revolution" (aka change you can believe in) while hypocritically claiming a percentage of "multicultural blood" so that they can claim kinship with the metastasizing 85 IQ underclass and directing its anger at the declining "core" population with the higher average IQ.
Meanwhile you have a very large and indigestible portion of that "core" population (not on the government payroll) which gets no benefit from the emerging corrupt, latin american style oligarchy and hates living under its domination - a group which is being asked to support an underclass with an average IQ too low to produce enough economic value to pay for their medical bills, the education of their children and their retirement costs. This large, indigestible and economically opressed group can be seen at the tea parties.
It is a potentially explosive mix in a conceptual nation that is rapidly becoming dependent upon the kindness of strangers.
Sources please. Not disputing, just asking for additional information.
Relevant picture. Who is asking for sources for such information?
China has roughly the same number females 15-40 age bracket as US total population.
This is correct. If economics targeted non-growth as a model, as opposed to inflation in money supply,population supply, GDP,asset price inflation-you name it, we would be a better world.
There is no infinite growth and when industrialism fails to create bubbles, idiots like Bernanke and Greenspan try to create bubbles and "inflationary" growth and increase in valuations via. dicking around with CREDIT(or fake money supply.)