Monday, July 30, 2018

Investing for the "Long Run"? You May Want to Consider This

While this blog's day is done...thought I'd offer a simple fact sheet to reference when discussing where and among whom the global population is growing, stalling, and/or shrinking.  This article breaks down the world into four groups of nations based on the World Banks gross national income (GNI) per capita.  Buckets are the wealthy, upper middle, lower middle, and poor.  Each bucket is further broken down by UN population data showing young (0-14 year olds), child bearing (15 to 44 year olds), and old (45+ year olds).  Population estimates through 2050 are based on UN medium variants (which continue to over estimate actual growth).

What should be apparent is that the populations that do nearly 4/5ths of the consuming of global energy, exports, and most everything else are declining and/or will soon be declining...and will continue declining indefinitely.  The present and future growth among the poor and elderly simply won't be able to offset the declining under 65 year old populations of the high and middle upper income nations of the world.  Make of this what you will as you consider investing for the "long run" and the inevitability (according to conventional wisdom) of assets appreciating over the "long run".

But first, a peek at fertility rates of the four groupings of nations from 1950 through 2015 and UN estimates through 2050 (fyr- a 2.1 fertility rate equals zero growth).  The deceleration everywhere should be evident.
High income countries represent 1.2 billion of earths 7.6 billion inhabitants (as of 2018) and consume approximately 45% to 50% of earths energy and exports.  Economies with $12,500 and up gross national income (GNI) per capita are considered "high income".  Switzerland leads the way at $80,000 per capita and the US is at $58,000 per capita, Germany at $43,500, Japan at $38,500, while Poland just makes the highest tier at $12,700 per capita.  The chart below shows high income nations by age segments (0 to 14, 15 to 44, and 45+ year old populations).

  • Young pop. peaked in 1970 at 230 million and has declined by 34 million (minus 15%) since that 1970 peak.  Est. to flat-line through 2050.
  • Child bearing pop. (15-44 yr/olds) peaked in 2009 and has declined by 10 million (minus 2%) since that 2009 peak.  Est. to decline by another 30 million (an additional 6% decrease) by 2050.
  • 45+ yr/old pop. has more than doubled (+210%) and is 280 million larger since 1970 when the young population peaked.  Estimated to grow another 120 million by 2050.
Breaking down the 45+ year old population...45 to 64 year olds versus 65+ year olds.  Plainly, all growth from this point forward is among the 65+ year old population while the 45 to 64 year old set is terminally in decline.  Given the declining earnings and spending habits of the 65+ year old population (on average, down 50% by the time head of household is 75yrs/old), this is a huge negative for economic activity going forward.
Upper middle income countries represent 2.6 billion and consume over 30% of the worlds energy and imports.  This includes economies ranging from $4,000 to $12,000 GNI per capita.  Notables include China, Turkey, Brazil, Mexico, Thailand, Columbia, and Russia.  Upper middle income nation populations, by age segment:

  • Young pop. peaked in 1991 and has declined by 110 million (minus 17%) since that 1991 peak.  Est. to decline another 95 million (minus another 17%...a total decline of 31%) by 2050.
  • Child bearing pop. (15-44 yr/olds) peaked in 2009 and has declined by almost 60 million (minus 5%) since that 2009 peak.  Est. to decline another 180 million or an additional 15% by 2050.
  • 45+ yr/old pop. has more than tripled (+353%) and is 670 million larger since 1970.  Est. to grow another 420 million by 2050 (essentially peaking by 2050).

Breaking down the 45+ year olds into 45 to 64 versus 65+ year olds.  The 45 to 64 year old set will peak in the mid 2030's and all population growth from there on will be solely among the oldest.Lower middle-income countries represent 3.1 billion persons and consume approximately 15% of the worlds energy and exports including India, Indonesia, Pakistan, Bangladesh, Philippines, Ukraine, and Egypt.  The lower middle economies have GNI of $4000 to $1000 per capita.  Populations, by age segments, below:
  • Young pop. nearly doubled since 1970, growing by 460 million (+180%) but this group is very near its peak, estimated to grow "only" 40 million more (4%) through 2050.
  • Child bearing pop. (15-44 yr/olds) grew 960 million and nearly tripled since 1970 but growth is now decelerating.  Still, the child bearing population is est. to grow another 390 million through 2050 but due to fast decelerating fertility rates, this is estimated to have almost no impact on the population of young.
  • 45+ yr/old pop. has more than tripled (+345%) and is 490 million larger since 1970.  It is estimated to more than double again (760 million) by 2050.  The bulk of the est. growth from now through 2050 will be among the 45-64yr/olds but the pace of the 65+ year old growth will begin to outpace the decelerating 45-64 year old segment over the period.
Low income countries represent "just" 700 million persons and consume perhaps as little as 5% of the worlds energy and exports.  These are primarily in sub-Saharan Africa but also include Afghanistan and Haiti.  These regions representing the vast bulk of all population growth result in miniscule growth in energy consumption, export consumption (commodities), or increased global economic activity...such is their poverty and lack of purchasing power.  The low income countries have economies with less than $1000 GNI per capita.  Populations by age segments, below:
  • Young pop. grew 200 million (or more than tripled) since 1970 and will grow another 170 million (or 159%) through 2050.
  • Child bearing pop. (15-44 yr/olds) grew +260 million since 1970 and is est. to still grow another +350 million through 2050.
  • 45+ yr/old pop. has more than tripled (+345%) and is 230 million larger since 1970.  It is estimated to more than double again (+350 million) by 2050.  The 45-64 year old segment will be responsible for the bulk of the population growth.
Those curious what the financial bubbles of  '01, '08, and present are's the interest rate reaction and debt inducement tied to changing demographics and population growth.  Those curious about the current trade war and ongoing currency wars...again, these are all about a fight for what is now a shrinking global pie of consumers among those with the ability to consume.  The benefits of globalization have run their course and a rear guard action is now underway to maintain access to the shrinking first and second tier economies of the world.  This changing landscape must be part of the strategy for those seeking to maintain hard earned savings and wealth in a totally different environment than has previously existed in modern history.