Demographics and the Lost Decade Ahead: The Opportunities in Alternative Investment and Living Strategies
By: Harry S. Dent, Jr., Author of The Great Depression Ahead (2008), The Roaring 2000s (1998), The Great Boom Ahead (1993), and Publisher of The HS Dent Economic Forecast Newsletter.
North America and Europe Follow Japan’s Long Slowdown
The stock markets have been rallying since the worldwide crash of 2008/early 2009. They assume that central banks will be able to re-stimulate the leading economies in the world as they have consistently since the mid-1970s. But we have been warning that this downturn is different. The largest generation in history, the Baby Boom, is peaking in their long spending cycle since the early 1980s and will be predictably shifting towards savings in the decade ahead. The next generation, the Echo Boom, is just entering the workforce and will not be able to counteract the Baby Boom’s long decline at first. And they will have more conservative attitudes about spending and borrowing after seeing the greatest credit and real estate bubble in modern history.
From a clear analysis of demographics and debt there is only one direction for the developed countries that still dominate the world economy: sideways to down between 2008 and 2020/2023 as we predicted in 1994 in our book The Great Boom Ahead. Despite the massive stimulus programs around the world, the deflation of the largest debt and asset bubble in history will result in deflation in prices, not inflation. That changes investment strategies entirely and creates much greater prospects for crime and civil unrest!
There are three things you have to understand to see the opportunities in business, investment and living in the most challenging decade since the Great Depression of the 1930s: Demographics, Debt and Deflation. We cover these issues in more depth in our free report: “The Debt Crisis of 2011 – 2012” To receive the FREE report on The Debt Crisis of 2011-2012 CLICK HERE. But the clearest trends come from the simplest and most predictable economic factor: Demographics.
Demographics and Predictable Spending Cycles
The most critical factor driving modern, developed economies is the predictable earning and spending cycle of the average family. People enter the workforce on average around age 20 and peak in spending around age 46. Hence, developed economies rise and fall on an approximate 46-year lag on their birth indices. Chart 1 shows such a 46-year lag on its immigration-adjusted birth index, which we call The Spending Wave. The greatest boom in history form 1983 – 2007 will be followed by a long slowdown from 2008 to 2020/2023. This is true of almost all developed countries to somewhat different degrees with Australia the most buoyant and Japan the least.
Chart 2 shows the broader Spending Wave for all of Europe. Note here that Europe continues to fall for decades ahead, whereas countries like the U.S., Canada, Australia and New Zealand have substantial Echo Boom generations to generate another boom to follow. In Europe, the weakest demographic areas are Russia, East Europe and Southern Europe. The most buoyant are Northern Europe. The real macro overview here is clear: the entire Western world — and the Asian Tigers — including China ultimately, are aging and will be seeing modest growth at best and continued decline at worst in the decades ahead. World growth will shift even more clearly to the emerging world from Southeast Asia and India to Latin America to the Middle East and Africa for the rest of our lifetimes, and our kids as well.
The Four-Season Economic Cycle: Winter Ahead
These generation cycles peak every 39 – 40 years as you can see with major long term stock peaks in 1929, 1968 and recently 2007. The economy and stocks boom for around 25 – 27 years and then bust for 12 – 14 years. We predicted a 12 – 14-year downturn in Japan in 1988 and 1989 and people thought we were crazy. We predicted the next great depression for the U.S. (and globally) to occur between 2008 and 2023 back in 1994. The simplest and most comprehensive economic planning cycle comes from combining two generation cycles into an 80-year cycle that parallels a human lifetime as we show in Chart 3. The blue lines track the last two generational boom bust cycles, with the first boom from 1942 – 1968 and the first bust from 1969 – 1982. The second boom was 1983 – 2007 and the coming bust likely from 2008 into 2020/2023.
The seasonal nature of this 80-year cycle comes when you add in the price or inflation/deflation trends or the red line. In the Spring Boom we came out of the low prices and deflation of the 1930s into mild inflation back to normal and comfortable levels which consumers and businesses like. Then the late 1960s and 1970s saw the Summer Season with rising inflation and a falling economy or “stagflation”. The great boom of 1983 – 2007 saw the Fall Season with falling inflation levels back into the comfort zone. New technologies were moving into the mainstream much like autos, electricity, phones and radios from 1914 – 1929. Surging productivity and falling interest rates create bubble booms in the Fall Season. It is the deflation of the asset and credit bubbles that causes deflation when the boom turns to bust in the Winter Season.
We are entering the next Winter Season from 2008 into 2023 with falling stock, real estate, commodity prices (including gold) – and falling consumer prices as well. This means alternative and international investing/living strategies are mandatory.
Where to Invest and Live
When most traditional investments are down, as in the 1930s, then you have to embrace alternative investment strategies. Cash and cash flow will be king! That means cash flow real estate properties and businesses work best, and ultimately long term bonds once rates spike in reaction to excessive stimulus programs, as they just did in Europe. After the crash ahead, health care in developed countries and emerging countries will offer the greatest long term returns again. In businesses creative entrepreneurs will be the big winners much as they were in the down economies of the 1930s and 1970s.
We have also been urging people to reconsider where they live and work. In the U.S. inland areas and cities that did not bubble up so much will survive this downturn better than large coastal cities. High foreclosures and unemployment correlates directly with rising crime and civil unrest. Safer countries in the Caribbean will be attractive retirement havens for Baby Boomers: Panama, Costa Rica, the American and British Virgin Islands, Nevis, Cayman Islands, Turks and Caicos, Vieques and Culebra (Puerto Rico). The safer developed countries/regions with less severe demographic downturns include Australia, British Columbia and New Zealand. Singapore is probably the safest city for doing business in Asia. India is the largest emerging country with the greatest demographic trends ahead and less exposure to the decline in global exports. China will age faster than most expect and see a huge export and internal expansion bubble burst when North America and Europe fail again in 2011 and 2012.
To summarize: This is a critical time to reassess your investment, work and living strategies. The next decade will be the most challenging and the most rewarding of any decade since the 1930s. The entrepreneurial people who see this coming will reap huge rewards and create whole new lifestyles.
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