2012Jan23 Demographis Is Destiny

For years we have been referencing the importance of demographics to understand the economy and investing. Recently, more analysts have been recognizing the significance of generational changes in spending and the economic impact. More than two decades ago, Harry Dent first published the spending impetus of the 45-49 age group.

Business Insider^® recently published this forecast in its Chart of the Day.

Strategists Daniel Grosvenor and Gary Evans at HSBC Global Research have scoured gigabytes of Census Bureau data confirming demographically driven spending patterns. Using this data can be referred to as generational arbitrage. It can be applied to other countries with a developed middle-class that has economic freedom.

Japan and much of developed Europe have already passed their demographically driven peak spending. With birth rates below replacement rate, economic struggles are their new reality. The world’s lowest birthrate is in South Korea which is an important G-20 emerging market. South Korea’s spending apex occurred in 2010 and should be looked upon as an “emerged” market.

China passed its spending apex three years ago and has prospered from the tail end of consumer demand in the USA and Europe. Emerging markets do not have enough population to replace US and European consumers. Economic growth in China is “demographically challenged” and will be very difficult to sustain.

Where do we see opportunity for investors? First, our economy is very flexible. Investing in sectors that adapt to the needs of Gen-X, Gen-Y and needs of an ageing population can be profitable while index investing will probably struggle. (Just look at the past twenty years in Japan for an example).

Our country has a positive birth rate, and our consumers will rise, again, to world dominance. The last five years of child rearing are the most expensive as parents pay for sports, cars, car repairs and college. All the toddlers you see in shopping malls will be driving that spending in the next decade. Celebrate babies. We are the only first world economy with a positive replacement birth rate.

In addition, several emerging markets have middle age demographic cohorts that don’t peak for 15 to 33 years. Opportunities will open for investors with a global perspective.

Isn’t it time for a second opinion about the construction of your portfolio? Ask a question at Info@InvestorResourcesInc.com or call us at 800-317-9119.