Saturday, October 21, 2017

Working Age Depopulation is Hugely Bullish for Assets...Bearish for Mankind

Population growth is the primary, if not sole, contributor to growth in consumption and the resultant economic growth.  But not simply any population, but it is the growing population of the working age or "core" population of 20 to 65 year olds (particularly among the wealthy or developing nations) that is hyper-critical.  The chart below shows the average household income and expenditures by the age of the head of the household.  Not surprisingly, the 35 to 64 year old age group makes and spends more than double the younger or older age groups.  Although the dollar amounts vary, this principle is true worldwide.

The rise, peak, and deceleration of core population growth among the nations with income, savings, and/or access to credit goes an awful long way in explaining the deceleration of economic growth.  That decelerating growth explains the interest rate cuts, rise in debt, and now the rise in central bank monetization.  This change in core growth (and the central banks reactions to it) explains the great and accelerating divergence of negative economic activity vs. positive asset valuations.  The charts below show core population growth (which is determined through 2035, and estimates from there on all taken from the United Nations).

The chart below details the change (per five year periods) in the "core" global working age population (20-65yr/olds, excluding Africa) and "elderly" (65+yr/olds, excluding Africa...why x-Africa explained below). 
  • Core growth peaked in 2010 and growth will decelerate by 52% in the current real numbers, the core population will grow 150 million fewer between 2015 and 2020 than it did between 2005 to 2010.
  • Core growth will decelerate 80% by real numbers, the core will grow by 230 million fewer from 2030 to 2035 than it did during the peak growth period.
  • By 2040, the core is likely to begin outright declining.
Global 20-65yr/old vs. 65+yr/old (x-Africa)
While working age population growth is decelerating, elderly population growth is accelerating and growth per period will more than double from 2010 through 2020.  Surging elderly growth will likely surpass dwindling core growth by 2025.
Global 65-75 vs. 75+ (x-Africa)
If you looked at the first chart much, then the chart below will be cause for extreme alarm.  2015 through 2020 is the peak of growth among the 65 to 75yr/old group and from 2025 onward, the 75+yr/old will be the primary source of population growth.  But since 75+yr/olds make and spend half as much...the economic impact should be really clear.  A halving of income growth and spending (or a proportionate decline of economic growth should be the expectation).

I'll outline the regions by the wealthiest to poorest and most economically important to least...and you may notice depopulation among wealthy and growth among poor.
European core growth peaked in 1985 and is now indefinitely declining, falling by 14 million during the current five year period...and on and on.  Meanwhile, the quantity of elderly keeps adding up but by 2025, European elderly growth will peak and begin decelerating (chart below).

Breaking down the growth of the European elderly between 65-75 vs. 75+yr/olds...all growth is shifting to the eldest and lowest of earners, slightest of spenders (chart below).  Economically, this portends things are going to get far worse Europe-wide.

N. America (Canada, US)
Core growth peaked in 2000 & growth is down 75% since.  Inversely, elderly growth is surging and will peak by 2025 (chart below).
The chart below highlights that while N. America's growth moves to the 65+ will be shifting to the oldest of the old.  Again, thinking of the income and spending of the elderly, the surge in growth among 75+yr/olds is a death knell economically.
Asia represents about 3/5th's of the worlds population, so even small changes there are a big deal everywhere. 
  • Asia adult core population growth has decelerated by 47% in the most recent five year period since the '05 to '10 real numbers, growth has decelerated by 110 million.
  • Asia adult core population growth will decelerate by nearly 80% by 2035 and turn outright negative somewhere between 2040 to 2050 (chart below).

East Asia
China, Japan, N/S Korea, Taiwan, Mongolia
  • Core population growth peaked in 1990 (adding over 100 million new adults from '85 to '90) but has turned outright negative during the current five year period, declining by 12 million.
  • Accelerating core depopulation in China, Japan, Taiwan, S. Korea, etc. will be persistent for the remainder of most of the rest of our lives.  This will be a phenomenon unlike the contemporary world has ever seen.
  • All growth will solely be among the elderly (chart below).
China, Japan, S. Korea, Taiwan will be home to the most 75+yr/olds in the world.  The most elderly of elderly (that add the least possible to economic growth) are set to surge in unprecedented numbers (chart below).
Middle East
West Asia is made up of Armenia, Azerbaijan, Bahrain, Cyprus, Georgia, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Palestine, Syria, Turkey, UAE, Yemen.
  • Core growth peaked in 2010 and is down 31% in 2020 (chart below).
South America
  • Core growth peaked in '05 and is down 28% vs. surging elderly growth.
  • Elderly growth will surpass core growth by 2030 and core growth will likely be negative by 2040 (chart below).
South Central Asia
The most populous region includes India, Kazakhstan, Kyrgzstan, Tajikistan, Turkmenistan, Uzbekistan, Afghanistan, Bangladesh, Iran, Pakistan, Nepal, Sri Lanka.
  • Core growth peaked in 2010 & will be down 8% in the current five year period.
  • Core growth will be down 32% by 2035...and continuing to fall fast from there.

Central America & Caribbean
Core growth peaked in 2010 and will consistently decelerate until turning negative around mid century.  Of course, growth among the elderly will do the inverse.
While the population growth in Africa is in the right places of core vs. elderly, it unfortunately will add up to almost nothing as outlined HERE.
I submit that these changes, unlike anything experienced by contemporary humankind, explain why central banks have taken over.  Global free markets have ceased to exist and asset prices are now centrally determined rather than freely set between buyers and sellers.  This is only the beginning and I haven't a clue how this ends but how central banks will respond is absolutely clear...they will monetize.  The fast rising combined Federal Reserve, Bank of Japan, & European Central Bank balance sheets are charted below vs. decelerating core population growth.  Asset prices will soar due to extreme weakness coupled with extreme monetization until this ludicrous monstrosity falls apart.
Of even greater concern or consequence than the economic or financial impacts, the very viability of democratic republics are at stake.  In a world where the pies that matter are either seeing decelerating growth or outright shrinking indefinitely, the public will be left with a choice.  Vote for the candidate suggesting cuts or the candidate suggesting we need never cut...because We can run ever larger deficits funded by greater central bank monetization (an unconstitutional body for this very reason that it allows the Congress to avoid its sole purpose of finding a balanced compromise of infinite wants vs. limited Tocqueville's fear come to fruition).  Unfortunately the only "viable" choices to lead us through the options will be liars and the public will select the liar who tells the lies they most want to be told and prefer to believe.  This is how a noble idea dies.  But what is born is not clear.

Economic decline masked with financial trickery leading to political farce and ultimately likely culminating in social breakdown (aka war).  But, of course, never have we gone to war with such horrific capability.  I believe we have the capacity to avoid the worst of outcomes...but if We can't even begin to discuss the problems We face (let alone potential solutions), then history seems sadly likely to repeat itself.