Thursday, May 18, 2017

Phony Asset Appreciation Built On Real Inverting Pyrimad!

The OECD nations plus China, Russia, & Brazil consume over 70% of all the world's oil and consume an even bigger % of global exports.  But one small problem​, the core populations of these nations have begun declining.  The charts below explain the inverting pyramid that is the population and employment situation within the OECD...and likewise, the combined nations of China, Russia, Brazil.

But first, a glimpse of the US situation.  Employment among the 25-54yr/old population has stalled since 2000 &  it is the growth among 55+yr/olds which drives the employment gains over the past decade.
Next, the chart below highlights the cessation of growth amid the core US population & employment among them, the moonshot of US marketable federal debt, the 3+ decades of declining Federal Funds rate, and the US stock market (represented by the Wilshire 5000) no longer affected by the pull of gravity.

Astute chart readers will note that as core population and employment growth ceased...federal funds rates were floored and debt substituted for the lack of growth.  And the US stock market total valuation blew past the bubble tops of '01 and '08.
A last chart on the US...showing the linkage of total energy consumption to the growth of the core populations employment...and the Fed's desire to incent the substitution of debt (via interest rate cuts) for the declining rate of true, organic economic growth.
Let's consider the much larger OECD...the first chart shows the breakdown of employment by age grouping within the 35 OECD nations.  Noteworthy are the predominance of the core 15-54yr/olds (almost 85% of all employees) and that employment among this group peaked in 2008.  Nearly all population growth and certainly all employment growth is now coming in the 55+yr/old segments.

The chart below highlights the 15-54yr/old population peaked in 2014...and jobs among this group peaked in 2008.  And unless immigration picks up, by 2030 the population will be almost 10 million smaller.

And the % of the 15-54yr/old OECD population that is employed...holding steady at 67%.

And to round out the picture, the 55-64yr/old OECD population, those employed among that population, and the % of that population employed.  Couple of gigantic points here...1) most employment growth since 2000 and all employment growth since 2008 has been among the 55+yr/old population.  However, the 55-64yr/old population growth is slowing rapidly and will peak in just over a decade...and 2) the portion of this population employed has skyrocketed from just 13% in 1960 all the way to nearly 60% in 2015...almost as high as the 15-54yr/old population.  So, the population won't grow much more and the % of those employed among this group is nearly at the 60% saturation point.  This groups growth potential is rapidly winding down and using some simple math, likely has no more than another 12 million employees among them at the 2028 peak.
Lastly, the 65 to 74yr/old OECD population, employment among that population, and the employed % of that population.  Some clear points...most population growth will take place among this group...employment is at a far lower total and % among this portion of the population.  What little OECD employment growth is left will mostly take place among this group.

If we broaden out to compare the combined CRB (China, Russia, and Brazil) 15-54yr/old population vs. the same for the OECD (chart below)...the peaks were very close but the growth of CRB was so much more dramatic than the OECD.  And the declines underway to be so much more spectacular.  The OECD is expected to inch downward by "only" 11 million by 2030 thanks to expectations of immigration.  Meanwhile, CRB begins freefalling.  Moving the existing significantly smaller 0-15yr/old population into the adult segment results in a decline of at least 100 million fewer adult consumers by 2030.  In sum between the OECD and CRB, the core of global consumption will decline by 110 million over a little more than the next decade...about a 6.5% decline in the prime global consuming population.

The population that drives economic activity across the globe has peaked and begun a decline likely to continue for decades.  The last outlets for net job growth among the 55+yr/olds are fast dwindling.

Put bluntly, you are a fool if you expect anything other than faster and further central bank intrusions in an attempt to avoid a free market re-pricing of assets based on plainly declining consumer demand.

Without the "accommodation", where would asset prices be?
  • Oil vs. CB balance sheets...

  • US Stock market (all publicly traded equities represented by the Wilshire 5000) vs. CB balance sheets...
The shift from private sources of debt to state sources of debt is like night and day.  Federal government and central bank debt is nothing like private debt.  Private debt pulls demand forward (into the present) with the downside of slowing future demand as the debts are serviced and ultimately repaid (or defaulted).  However, federal debt and central bank monetization is undertaken with no intent that the "loans" (bonds) will ever be repaid and their servicing will be done at ever lower rates (with ever more monetizing).   This may be something you want to factor into those projections your certified financial planner spouts about stock markets are a good idea for long term growth averaging 7-10% annually.  If investors are to get their advertised return (as I believe they will), it will be based on a central bank "financialization" and out and out fraud to achieve the otherwise impossible (asset appreciation absent underlying economic growth).