The Demographic Cliff - Amazon S3 · Harry S. Dent, Jr. (November 1992) The Demographic Cliff How to Survive and Prosper During the Great Deflation of 2014-2019 (January 2014) Telling

presented by

Harry S. Dent, Jr.

(November 1992)

The Demographic Cliff How to Survive and Prosper During the Great Deflation of 2014-2019

(January 2014)

Telling the Truth

Babies Are The Key to The Future

Average Annual Family Spending by Age (5-year age groups)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Spen

ding

46-50

20 30 80 60 70 50 40 Age

Data Source: Bureau of Labor Statistics

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000 19

09

1919

1929

1939

1949

1959

1969

1979

1989

1999

2009

Imm

igra

tion

Adj

uste

d B

irths

Data Source: U.S. Census Bureau

Immigration-Adjusted Births

The Spending Wave Births Lagged for Peak Spending

2,200,000

2,700,000

3,200,000

3,700,000

4,200,000

4,700,000

5,200,000

1,000

4,000

7,000

10,000

13,000

16,000

1956 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056

Data Source: Dent Research, U.S. Census Bureau, Bloomberg, 2013

Dow Adjusted for

Inflation Immigration-

adjusted Births Lagged for

Peak Spending

Inflation Indicator

-6%

-1%

4%

9%

14%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

1953

19

55

1957

19

59

1961

19

63

1965

19

67

1969

19

71

1973

19

75

1977

19

79

1981

19

83

1985

19

87

1989

19

91

1993

19

95

1997

19

99

2001

20

03

2005

20

07

2009

20

11

2013

INFLATION (CPI)

LABOR FORCE GROWTH 2.5-YR LAG

Data Source: Bureau of Labor Statistics, Dent Research, 2013

Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics

-14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000 19

50

1955

19

60

1965

19

70

1975

19

80

1985

19

90

1995

20

00

2005

20

10

2015

20

20

2025

20

30

20 Year-Olds on a 3-Year Lag

Minus 63 Year-Olds Inflation

Inflation Forecast A

nnua

l Lab

or F

orce

Gro

wth

Ann

ual I

nfla

tion

(%)

Forecasting is a Delicate Balance

Who Sees the Truth

Demographic Cliffs Around the World

Country Peak Spending Japan 1989-1996

United States 2003-2007

Germany 2010-2013

United Kingdom 2010-2013

France 2010-2020

Italy 2013-2018

South Korea 2010-2018

Spain 2025

China 2015-2025

Source: U.S. Census Bureau, United Nations Population Division

Consumer Life Cycle of Spending

Spen

ding

20 Age

25 30 35 45

20

Workforce Entry

26 28

Childbirth- Infant Furniture

31 33

25

Childcare/ Babysitting

First/Starter Home

Marriage

41 42

Mortgage Interest

Trade-up Home; Potato Chips/Groceries

First Car



45 Age

48 51

48 46

Spen

ding

53 College Tuition

Motorcycles; Vacation Homes

Furniture; Tires

43 54

51 Autos

Home Improvement

54



Spen

ding

55 Age

60 65 70 75 80 85

China/ Dinnerware

55

58

Life Insurance; Doctor’s Fees

60

Garden/ Lawn Care

70

Vacation and Retirement Homes

77

Nursing Homes

81

Prescription Drugs

Hospitals; Travel

65 Cruise Ships

74

Medicare Co-Pay

84


The Greatest Debt Bubble In History

Debt vs. GDP Growth 1983-2011

$0

$10

$20

$30

$40

$50

$60

$70

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

Trill

ions

Total U.S. Debt GDP

Debt Growth= 773%

GDP Growth= 304%

Debt = 2.54x GDP

Data Source: St. Louis Federal Reserve, Treasury Direct, 2013

Debt Ratios Around the World

0%

100%

200%

300%

400%

500%

600%

700% Official Government Consumer Corporate Financial

Data Source: “Measuring the Unfunded Liabilities of European Countries,” Jagadeesh Gokhal, OECD, “The debtor’s merry-go-round,” The Economist, 9/29/2012. National Central Banks, 2013

Deb

t to

GD

P

626

347

560

276 277

489

328 314

379

283

369 315

358

274 266

152 130

78

U.S. Unfunded Entitlements

Private Estimates

Source: Kleiner, Perkins, Caufield & Byers - www.kpcb.com, USA Inc. February 2011

$66 Trillion!!!

Total U.S. Debt Public and Private

•  Total Government Debt $19.8T •  Total Private Debt $39.4T •  Foreign Debt $ 2.3T •  Unfunded Entitlements $66.0T •  Total $127.5T

8.2x GDP!!

+

The Great Cover Up

Central Bank Balance Sheets Globally

$-

$2

$4

$6

$8

$10

$12

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

ECB

FRB

BOJ

PBoC ex. Foreign Exchange Reserves

BoE

SNB

Data Source: Federal Reserve, People’s Bank of China, Bank of England, European Central Bank, Swiss National Bank, Bank of Japan, Bloomberg, 2013; *Foreign Currency Amounts Converted in 7/2013

In T

rillio

ns o

f Con

vert

ed U

SD*

Blowing Smoke: More Debt to Cure Debt Crisis?

Source: Amherst Securities

Pre-Tax Income Borrowing Power

2.8 times

Borrowing Power of a Typical Home Purchaser

The Limits of Stimulus

Debt is Like a Drug GDP per Dollar of Debt

-$150

$50

$250

$450

$650

$850

$1,050

$1,250

-10% 0%

10% 20% 30% 40% 50% 60% 70% 80% 90%

1953

19

56

1959

19

62

1965

19

67

1970

19

73

1976

19

79

1982

19

84

1987

19

90

1993

19

96

1999

20

01

2004

20

07

2010

GDP Growth (2-year Moving Average) Total Credit Market Debt (2-yr Moving Average)

Gain in GDP per Dollar of Debt Added

Data Source: St. Louis Federal Reserve, 2012

Cha

nge

in B

illio

ns

-6.0%

-2.0%

2.0%

6.0%

10.0%

1810

18

20

1830

18

40

1850

18

60

1870

18

80

1890

19

00

1910

19

20

1930

19

40

1950

19

60

1970

19

80

1990

20

00

2010

10-year rolling average of CPI

Source: Minneapolis Federal Reserve, 2013

Cycles of Inflation and Deflation

What Recovery?

0% 5%

10% 15% 20% 25% 30% 35% 40% 45% 50%

1913

19

18

1923

19

28

1933

19

38

1943

19

48

1953

19

58

1963

19

68

1973

19

78

1983

19

88

1993

19

98

2003

20

08

Top 1% Income Share Top 10% Income Share Top 1% Wealth Share

Data Source: Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez, The World Top Incomes Database, http://g-mond.parisschoolofeconomics.eu/topincomes, 2013, Edward Wolff, as printed in Wealth and Democracy and New York University, 2010

Top 1% and 10% of Net Worth and Income

Sticking it to the Middle Class

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90

Data Source: U.S. Census Bureau

Age

46

Aver

age

Ann

ual E

xpen

ditu

res

Total Consumer Spending

39 53

2014 2007 2000

Key Global Triggers for the Demographic Cliff Ahead

Key Global Triggers

•  Japan Coma Economy • Spain Real Estate Bubble and

Southern Europe •  The Great China Disaster

Japan Residential Land Price National Index

0

50

100

150

200

250

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Bubbles tend to go back to where they started

Prices rose 2.6 times in 6 years

Source: Japan Statistics Bureau

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

0

20

40

60

80

100

120

140

160

180

1978

19

82

1986

19

90

1994

19

98

2002

20

06

2010

20

14

2018

20

22

2026

20

30

2034

20

38

2042

20

46

2050

Mill

ions

Real Home Prices 42-year olds minus 84-year olds

Data Source: Ministry of Health, Labour and Welfare, Japan, 2013

100=

2005

Japan Net Housing Demand

Peak Buyers (42) minus Di-ers (84)

Japanese Nikkei Index 1984-2013

5000

10000

15000

20000

25000

30000

35000

40000

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Data Source: Bloomberg, 2013

Japan GDP 1982-2012

¥0

¥100,000

¥200,000

¥300,000

¥400,000

¥500,000

¥600,000

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Japan GDP in Billions of Yen

Data Source: IMF, 2013

Japan Consumer Price Index 1960-2013

0

20

40

60

80

100

1960

19

62

1964

19

66

1969

19

71

1973

19

75

1978

19

80

1982

19

84

1987

19

89

1991

19

93

1996

19

98

2000

20

02

2005

20

07

2009

20

11

Japan CPI

Inde

x 10

0= 2

005

Data Source: OECD, 2013

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

1947 1957 1967 1977 1987 1997 2007 2017 2027 2037 2047 2057 Mill

ions

of B

irths

on

47-y

ear L

ag

Data Source: Ministry of Health, Labour and Welfare, Japan, 2013

Japan, Spending Wave 1950-2095

Unemployment Rate, PIGS 2007-2013

5%

10%

15%

20%

25%

30%

2007 2008 2009 2010 2011 2012 2013

Greece Spain Italy Portugal

Data Source: EuroStat, 2013

Greece, Non-Performing Loans

18%

25%

31%

0%

5%

10%

15%

20%

25%

30%

35%

2011 2012 2013

Share of Non-performing loans of total

Source: Price Waterhouse Coopers, 2013

U.S. vs. Spain: House Price Index, 2000-2013

100

120

140

160

180

200

220

240

260

280

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

U.S. Spain

Data Source: St. Louis Federal Reserve, National Statistics Institute, Spain, 2013

Inde

x 10

0=20

00

U.S. vs. Spain, % of Workforce Involved in Construction

4% 5% 6% 7% 8% 9%

10% 11% 12% 13% 14%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Spain U.S.


Spain, Bad Loan Ratio 1962-2013

0%

2%

4%

6%

8%

10%

12%

14%

1962

19

64

1966

19

68

1970

19

72

1975

19

77

1979

19

81

1983

19

85

1988

19

90

1992

19

94

1996

19

98

2001

20

03

2005

20

07

2009

20

11

Bad Loan Ratio


Lending in Spain 1995-2013

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

Spain, Private Loans, YoY Change


29-30 Year Commodity Price Cycle CRB Index (PPI before 1947) 1913-2040

050

100150200250300350400450500

191

3

192

3

193

3

194

3

195

3

196

3

197

3

198

3

199

3

200

3

201

3

202

3

203

3

1949-1951

1920

1980

2009-10 2039-40


China’s Emerging World Pivot

35%

38%

41%

44%

47%

50%

53%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Percent of China Exports to Emerging World

Data Source: International Trade Centre, 2013

0 50 100 150 200 250 300 350 400 450 500

0

10

20

30

40

50

60

Apr

-03

Oct

-03

Apr

-04

Oct

-04

Apr

-05

Oct

-05

Apr

-06

Oct

-06

Apr

-07

Oct

-07

Apr

-08

Oct

-08

Apr

-09

Oct

-09

Apr

-10

Oct

-10

Apr

-11

Oct

-11

Apr

-12

Oct

-12

Apr

-13

Emerging Markets (EEM) CRB Index

EEM

CR

B In

dex

Data Source: Yahoo Finance, 2013

EEM vs. CRB 2003-2013

China’s Global Share of Selected Commodities

0

10

20

30

40

50

60

Iron Ore Coal Lead Zinc Aluminum Copper Nickel Oil

Perc

ent

Source: The Economist; “A Game of Catch-up,” 9/24/2011

Home Price to Income Ratios Around the World

0

5

10

15

20

25

30

35

40 Home Price to Income Ratio, 2013

Data Source: Numbeo.com, 2013

Average Home Price to Income Ratio

15.7 Times

0

2

4

6

8

10

12

14

16

18

Home Price to Income Ratio

Data Source: “Findings from China Household Finance Survey,” Texas A&M University and Southwestern University of Finance and Economics, Li Gan, 2013

Assets: $148,800 Income: $9,468

Housing Units vs. Household Formation

Source: Pivot Capital Management, 2010

Oversupply of Housing

19 mm

5.8 mm

0

2

4

6

8

10

12

14

16

18

20

Housing Starts in 2011 Incremental Annual Demand

Housing Supply is Outpacing Demand By 3.3:1

Mill

ions


Home Ownership Rates in China

92.6% 89.7% 85.4%

65% 63% 60%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

China Rural

China Overall

China Urban

United States

World Average

Japan

China Rural China Overall China Urban United States World Average Japan


Saving Rate of the Rich Chinese

69.0% 64.6% 66.5%

74.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Average Saving Rate Percent of Total Savings

Top 5% Top 10%


Total Asset Share of the Top 10% in China

Household Assets

Top 10% Bottom 90%

84.6%

15.4%

Financial Assets

Top 10% Bottom 90%

61.0%

39.0%

Non-Financial Assets

Top 10% Bottom 90%

88.7%

11.3%


Loan to Income Ratios by Income Percentile

32.4X

13.5X

3.6X 3.2X

0

5

10

15

20

25

30

35

0-25% 25-50% 50-75% 75-100%

Total Bank Loans to Family Income Ratio


China Can Sustain a Drop of 40% in Home Prices

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

5% 10% 20% 30% 40% 50% 60% 70% 80%

Percent of Homes Underwater with Paired Vale Decrease

Sustainable Drop Danger Zone

Decline in Home Values Data Source: “Findings from China Household Finance Survey,” Texas A&M University and Southwestern University of Finance and Economics, Li Gan, 2013

0

50

100

150

200

250

300

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Shanghai, China House Price Index

Inde

x= 2

007

Data Source: Global Property Guide, 2013

Shanghai Real Estate Prices

550%

-85%

China, Workforce Growth 1950-2100

20000

220000

420000

620000

820000

1020000

1220000

1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

Workforce, Aged 15-64

Source: United Nations Population Division, In Thousands

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0 10 20 30 40 50 60 70 80 90

$14,000

% Urban

GD

P Pe

r Cap

ita

Source: Angus Maddison and World Bank

$9,100 in 2012 Int’l Dollars

China, Urbanization Rate vs. GDP per Capita

2025 Target: 72% Urban, $12,500 GDP per Capita

Disaster Scenario: 221m at Risk

-

100

200

300

400

500

600

700

800

Urban Population Registered Urban Dwellers

Unregistered Urban Dwellers

Mill

ions

712 Million at 53% Urbanization Rate

421 Million are Registered Urban Citizens at 69% of Urban

The Remaining 221 million at 31% of Urban are highly vulnerable


Long-Term S&P and Geopolitical Cycle


Key Macro Economic Cycles 19

00

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

2020

2030

30-Year Commodity

Cycle

36-Year Geopolitical

Cycle

39-Year Generation

Cycle

Source: Dent Research

0

50

100

150

200

250

300

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Recession Number of Sunspots

Data Source: NASA.gov, 2013

Suns

pot N

umbe

r

10-year Sunspot Cycle 1900-2013

0 20 40 60 80

100 120 140 160 180 200

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

2017

20

18

2019

Recession Number of Sunspots

Data Source: NASA.gov, 2013

10-year Sunspot Cycle 1997-2019

-2 0 2 4 6 8

10 12 14 16 18 20 22 24 26

2nd Presidential Year

3rd Presidential Year

4th Presidential Year

1st Presidential Year

Source: Ned Davis Research, www.ndr.com

Four-Year Presidential Cycle

Quarterly U.S. Real GDP Growth 2009-2012

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Q1

2009

Q2

2009

Q3

2009

Q4

2009

Q1

2010

Q2

2010

Q3

2010

Q4

2010

Q1

2011

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Real GDP, Annualized Growth Rate

Data Source: Bureau of Economic Analysis, 2013

QE 1 QE 2 QE 3

The Great Bubble is About to Burst Again

What is This?

Masters and Johnson Sexual Response Cycle

Orgasm

Excitement &Plateau (Arousal)

Desire (Appetitive)

Bubbles Are Like Orgasms Masters and Johnson Sexual Response Cycle

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Nikkei

Masters & Johnson Sexual Response Cycle

Source: Japan Statistics Bureau, Masters and Johnson

Orgasm

Excitement &Plateau (Arousal)

Desire (Appetitive)

Bubble After Bubble 1984-2015

1

2

3

4

5

6

7

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Inde

x of

1 a

t Sta

rt o

f Bub

ble

Data Source: Yahoo! Finance, Japan Bureau of Statistics, Bloomberg, 2013

2.6x: Japan Real Estate

6.8x: Nasdaq 5.6x:

Shanghai Index

4.8x: Gold

2.2x: U.S. Real Estate

5.6x: Nikkei

0

2000

4000

6000

8000

10000

12000

14000

16000

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

A

D

C

B

E

Data Source: Yahoo! Finance, 2013

Dow Megaphone Pattern 1995-2015

Dow Channel 2011-2014

10,000

11,000

12,000

13,000

14,000

15,000

16,000

Aug

-11

Feb-

12

Aug

-12

Feb-

13

Aug

-13

Feb-

14


1

3

2

4

5

0

2

4

6

8

10

12

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015


10-Year Treasury Bond Channel 1989-2015

3.8%

700

950

1,200

1,450

1,700

1,950

2008

2009

2010

2011

2012

2013

2014

2015


A

5 B

Gold 2008-2015

$1,420-$1,520

U.S. Dollar Index 1980 – 2015


60

70

80

90

100

110

120

130

140

150

160

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

-58% +62%

The Great Real Estate Bubble and Outlook

Looks Like Real Estate is Getting Ready to Fall Again

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

20

40

60

80

100

120

1988

19

91

1994

19

97

2000

20

03

2006

20

09

2012

20

15

2018

20

21

2024

20

27

2030

20

33

2036

20

39

Mill

ions

Real Home Prices, left U.S. Net Housing Demand (41 minus 79), right

100=

2005

Data Source: US Census Bureau, Dallas Federal Reserve, 2013

U.S., Net Housing Demand 41-year-olds minus 79-year-olds

50

75

100

125

150

175

200

225

250

1996

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

07

2008

20

09

2010

20

11

2012

20

13

2014

20

15

2016

S&P Case-Shiller 10-City Home Price Index, Index January 2000 = 100

Data Source: Standard & Poor’s Case-Shiller US 10-City Home Price Index, 2013

-34%

-34%

Case-Shiller, 10-City Index 1996-2012

Action Steps for Investors

1) Sell Stocks by mid-January 2014 2) Sell Real Estate and Second Homes by early 2014 3) Talk Kids Out of Buying First Home – Wait to 2015+ 4) If Looking to Downsize Home, Do So by Year-end 5) If Looking to Sell Business, Do So by early 2014 6) Sell Bonds at 2.5% 10-year Treasury, Buy near 3.8%

after further spike likely ahead 7) Wait for Major or Minor Crash into Early 2015+ to Re-

Invest, especially near Dow 6,000 8) Buy India, Mexico, Southeast Asia, Health Care,

Starter Homes and Vacation Homes

Action Steps for Businesses

1)  Focus on Product Lines/Businesses You Can Dominate – Sell Others to Raise War Chest

2)  Sell Non-Strategic Real Estate and Rent/Lease 3)  Analyze and Cut Overheads and Fixed Costs 4)  Cut Variable Costs Where Possible 5) Only Make Short Term Investments that Increase

Sales or Cut Costs 6) Defer Major Capital Expenditures Until Later When

Will Be Cheaper and Your Competitors Are Failing 7) Target Now Which Competitors and What Assets Are

Likely to Become Available – Be Ready to Pounce

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The Demographic Cliff - Amazon S3 · Harry S. Dent, Jr. (November 1992) The Demographic Cliff How to Survive and Prosper During the Great Deflation of 2014-2019 (January 2014) Telling