”Across the Middle East, where Christianity was born and its followers once made up a sizable portion of the population, Christians are now tiny minorities,” writes Kristen Chick.  “Driven by different factors — the search for better opportunities abroad, their status as targets of Iraq’s sectarian conflict, a low birth rate, and discrimination — the trend largely holds true across a region where Christians have maintained a presence for two millenniums.” — From “The Wane of Christians in the Mideast,” Christian Science Monitor print edition, January 24, 2010.

The demographic changes happening in the Middle East have interesting implications for the economic development of the region, not to mention the geopolitics as well.  We’ll cover some of these trends today.   Read the rest of this entry »

One of our Demographics School attendees forwarded us two articles we thought we’d pass on:

“The American Who Manages the Decline of a Japanese Hamlet“  Wall Street Journal

“In Aging China, A Change of Course” Washington Post

It’s a week before Christmas, and we can’t help making a comparison here to Charles Dickens’s A Christmas Carol.  In this case, China is Scrooge and Japan is the Ghost of Christmas Yet to Come.

The difference is, unlike Ebenezer Scrooge — who had the ability to change his ways and avoid his unfortunate fate –China’s future cannot be changed.

In comparing China to Scrooge, we are not referring to Chinese labor practices or implying that China’s labor force consists of millions of unfortunate and underpaid Bob Cratchits.   It’s not China’s wages that we consider misery, but rather its birthrate.

Demographics are the future that has already been written, and China’s future looks bleak indeed. But first,let’s look at Japan.  The Wall Street Journal article above tells the story of an American whose job it is to manage the slow death of a small Japanese village.  While one village might not be particularly significant in the grand scheme of things, the same is occurring throughout Japan.  The island, with the exception of a small number of large cities, is slowly being depopulated.  Falling birthrates throughout the post-WWII era have insured that Japan will continue to shrink for the foreseeable, with serious consequences for the stability of the country.

China isn’t to this stage yet.  But after 30 years of the One Child Policy, it is only a matter of time before the day comes.  Even if China were to suddenly reverse the policy — which is unlikely — the damage has already been done.  And, as the Washington Post article recounts, Chinese families have become accustomed to the One Child Policy.  Many simply cannot afford to have a second child even if they wanted one.

So again, unlike Ebenezer Scrooge, it is almost certainly too late for China to change its ways.

Related post: “Some Geopolitical Musings”

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The funeral industry was long viewed as being the most recession-proof industry in the world outside of basic staples like food.  As Ben Franklin told us, along with taxes, death is the only real certainty in life.  But in this most unusual of recessions, even the business of burying the dead is suffering.  Consider this headline from today’s FT: “Death is certain, but it is far from recession-proof.”

The FT writes,

However grand or modest, everyone must have a funeral and publicly listed “death care providers” offer a way to profit from nature taking its course.

Yet even this $15bn a year business has not been recession-proof. Operating earnings of the four largest vertically integrated operators of funeral homes and cemeteries fell by between 10 and 38 per cent over the past six months, compared with a year earlier.

The FT tells us that survivors of the deceased are not the ones pinching pennies.  It is the deceased themselves, while still alive, that are cutting back on prepayments.   There is an entire sub-industry dedicated to prepaying future funerals and investing the proceeds.

At any rate, the Great Recession has only exacerbated a much bigger and more significant trend:  there are fewer people dying.   This is great news, of course (unless you’re a funeral director).   But it has nothing to do with Americans living longer or being healthier.

As you might expect, demographics provide the answer.  We are currently experiencing a “death trough.”   The Boomers are still far too young to be meeting their Maker en masse.  At the same time, the bulk of the Greatest Generation (the World War II generation) has already left us.   This means that the generation now in their golden years is the much smaller Silent Generation, the generation that was too young for WWII but too old for Vietnam.

Fewer people born means fewer people to die — and less business for funeral operators.

The funeral industry will have another decade or two of tight conditions.   But when the Boomers begin to enter their 70s and 80s, business should boom again.

Will many Boomers, reminiscing about their hippie past, opt to be cremated and have their ashes scattered at Woodstock?  Maybe.  But the Boomer generation is so large, it won’t matter.  Even if a smaller percentage of Boomers opt for traditional burial, the shear number of Boomers will insure that business will be good.

In life, the Baby Boomers have been the proverbial “pig passing through a python,” making fortunes for marketers smart enough anticipate what they will buy next.  And the same will be true in death.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

Barron’s relates a description of Japan’s future by a hedge fund manager familiar with the country:

Within 50 years or so…high-tech aircraft will be taking Chinese and American tourists on fly-overs there to view the dilapidated remains of what was once the world’s second-largest economy.  By then, all that survives will be blighted metropolises like Tokyo, populated mostly by the elderly, and decaying, weed-choked highways, bridges and bullet-train right-of-ways, spectral reminders of a once-vibrant society that lost its way.  (From “Is the Sun Setting On Japan?“)

This is a theme that HS Dent has been covering for years, and for good reason.  We see something along these lines befalling parts of Europe and, to a lesser extent, even the United States. (The U.S. will get older, though it will not actually shrink any time soon).  As Barron’s continues, “The old saw about demographics being destiny certainly applies to Japan, which is graying at an alarming rate because of longtime low fertility rates; its post-World War II baby boom petered out almost a decade before America’s ended in the mid-1960s.”

Demographics certainly are destiny; they are the future that has already been written.  And this future, as Japan has proved, is one of less consumer spending and a higher rate of savings.  This — combined with the hangover from a bursting debt bubble — should insure that the U.S. economy will grow at more modest rates in the decade ahead.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

Dennis Gartman, of the eponymous Gartman Letter, is fond of saying that all economic information of any importance is initially anecdotal, and I agree completely.  Formal economic stats are good for identifying trends, but they are next to useless in identifying turning points.  For these, you need a real “boots on the ground” perspective: What are people buying at the mall?  How full is the parking lot?  Are they ordering that extra bottle of wine at dinner?

This brings me to a new economic indicator:  my mother in law.   Every guy knows he has to listen to his mother (and perhaps even more so his wife’s mother), but few think to use them as an economic barometer. Read the rest of this entry »

By now, everyone should be aware of the anti-regime protests taking place in Iran.   The country is experiencing unrest not seen since the 1979 Islamic revolution that deposed the Shah and brought the current regime to power.  The “spark” that ignited this rebellion was the disputed presidential election, of course.  But the “tinder” that caused this fire to spread are Iran’s demographics.  As you can see from the charts below, Iran is primed for revolution. Read the rest of this entry »

This week’s Economist covered several themes that we ourselves have been covering for the past several months, but we thought we’d start with this gem of a quote:

“The public is scared and uncertain; the politicians are panicky and confused. They are leading each other around and down a worrying spiral of ignorance.”  From “The Spiral of Ignorance”

This certainly seems to be the view of the market.  With the government reluctantly tiptoeing its way into a de facto nationalization of the banking system, the message being sent is one of uncertainty.  And the market hates uncertainty. 

Read the rest of this entry »

As the editor of the Gloom, Boom, and Doom Report, Marc Faber is one of the more controversial financial writers out there.   He appears frequently in The Financial Times and The Wall Street Journal and is a featured panelist Barron’s annual round table.    We enjoy reading his work, though we concede that the man might be certifiably insane.  We say this (mostly) in jest. 

At any rate, Mr. Faber’s editorial in today’s Journal echoed one of Harry Dent’s main themes throughout much of this decade.   Though American stock prices never went as high as Harry Dent originally forecast, the bubble expanded out of control in other stock markets around the world, in the commodities markets, and even in exotic asset classes like art and wine.  (We touched on some of these themes in an earlier post today).  It was indeed the first globally-synchronized bubble.  Unfortunately, when it all came crashing down in 2008, it became a globally-synchronized bust.  Correlations between virtually all assets converged to one.

Read the rest of this entry »

Consumer spending is the backbone of the US economy, accounting for a full 70% of GDP.  Not surprisingly, a lot of marketing dollars are spent analyzing consumer behavior.  We’ve never given much credence to some of the more popular measures of consumer sentiment, such as the University of Michigan’s Consumer Sentiment Survey and the Conference Board’s Consumer Confidence Index, as they tend to be a little too noisy to be useful.  But there are long-term trends in consumer behavior that we do take note of.   Seismic shifts in the economy can create fundamental changes in consumer psychology and behavior, which, in a feedback loop, in turn affect the economy.   This was certainly the case during the Great Depression.

Demographics play a significant role this process, of course.  As people age, they become less risk tolerant.  They tend to downsize their lives, consuming less and saving more.  In many aspects of their lives, the optimism of youth is replaced by a more skeptical or even cynical attitude toward new trends.  The “simple things” become more important, and there is less priority placed on conspicuous consumption.   When the percentage of the population that is past its peak spending years grows, it begins to change the character of the greater economy and even the culture of the country.  This is exactly what happened in Japan during their long-term, slow-motion depression in the 1990s and early 2000s, and it is what we see happening in the United States and Europe.

Read the rest of this entry »

HS Dent has a long-running commentary on Harley Davidson.  Few companies have a demographic profile as pronounced as that of Harley - the grey-bearded 50-year-old man in the leather jacket.   It’s not just a stereo type.  Consider the embedded graphic.  Demand for big bikes spikes during the male mid-life crisis years of 45-50 and then falls off of a cliff thereafter.       Read the rest of this entry »