Transcript Immigration Adjusted Birth Index

Aging Baby Boomers
Their Impact on the Economy and Financial Services Industry
presented by
Harry S. Dent, Jr.
(1993)
(2011)
Shocked by the
Financial Meltdown
Be at Peace with Change
The Spending Wave
Births Lagged for Peak Spending
5,200,000
16,000
4,700,000
13,000
4,200,000
3,700,000
3,200,000
2,700,000
Dow
Adjusted for
Inflation
10,000
Immigrationadjusted Births
Lagged for
Peak Spending
2,200,000
1956 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056
Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, 2011
7,000
4,000
1,000
Average Annual Family Spending by Age
(5-year age groups)
46-50
$40,000
$35,000
Spending
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0 20
30
40
50
Age
60
70
80
Labor Force Growth, Actual and Forecast
(20-Year-Olds Minus 63-Year-Olds)
0.05
20 year olds minus 63 year olds
3600000
Labor Force Growth
20-63 Year Olds
3100000
2600000
0.03
2100000
0.02
1600000
0.01
1100000
0
600000
Data Source: Bureau of Labor Statistics, HS Dent, 2011
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
-0.01
1950
100000
Labor Force Growth Rate
0.04
3,000,000
Inflation
20 Year-Olds
on a 3-Year Lag
Minus 63 Year-Olds
2,000,000
1,500,000
1,000,000
500,000
Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
0
1950
Annual Labor Force Growth
2,500,000
18
16
14
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
Annual Inflation (%)
Inflation Forecast
Inflation Indicator
3.50%
3.00%
2.50%
LABOR FORCE
GROWTH
2.5-YR LAG
14.00%
INFLATION (CPI)
9.00%
2.00%
1.50%
4.00%
1.00%
0.50%
-1.00%
0.00%
Apr-53
Apr-55
Apr-57
Apr-59
Apr-61
Apr-63
Apr-65
Apr-67
Apr-69
Apr-71
Apr-73
Apr-75
Apr-77
Apr-79
Apr-81
Apr-83
Apr-85
Apr-87
Apr-89
Apr-91
Apr-93
Apr-95
Apr-97
Apr-99
Apr-01
Apr-03
Apr-05
Apr-07
Apr-09
Apr-11
Apr-13
-0.50%
Data Source: Bureau of Labor Statistics, HS Dent, 2011
-6.00%
What You Must Understand Now
 Demographics
What You Must Understand Now
 Demographics
 Debt
What You Must Understand Now
 Demographics
 Debt
 Deflation
Part One: Demographics

People Do Predictable Things as They Age

Projecting Trends, not Years, but Decades in Advance
2009
2004
1999
1994
1989
1984
1979
1974
1969
1964
1959
1954
1949
1944
1939
1934
1929
1924
1919
1914
1909
1904
S&P 500 Adjusted for Inflation
1900-2009, Log Scale
10000
1000
100
10
2009
2004
1999
1994
1989
1984
1979
1974
1969
1000
1964
1959
1954
1949
1944
1939
1934
1929
1924
1919
1914
1909
1904
39-40 Year Generation Cycle
S&P 500 Adjusted for Inflation
10000
2007
1968
1929
100
10
Babies Are The Key to The Future
The Immigration Adjusted Birth
Index
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2009
1999
1989
1979
1969
1959
1949
1939
1929
1919
2,500,000
1909
Immigration Adjusted Births
5,500,000
This Is What You See
Potato Chip Purchases by Age
70
42
60
$ Per Year
50
40
30
20
10
0
10
20
30
40
50
60
Age of Head of Household
70
80
Motorcycle Sales by Age
50
45-49
$ Per Year
40
30
20
10
0
20
25
30
35
40
45
50
55
Age of Head of Household
60
65
70
What Would Grow As Baby
Boomers Age?
Spending on Prescription Drugs
by Age
180
81
160
$ Per Year
140
120
100
80
60
40
20
0
20
25
30
35
40
45
50
55
60
65
70
Age of Head of Household
75
80
Spending
Real Estate Spending Cycles
Colleges
18
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Spending
Real Estate Spending Cycles
Offices
21
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Spending
Real Estate Spending Cycles
Apartments
26
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Shopping
Centers
26
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Starter
Homes
29-33
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Trade-Up
Homes
37- 42
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Vacation
Homes 46-48
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Resorts
54
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Real Estate Spending Cycles
Spending
Vacation /
Retirement
Homes
63-65
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Spending
Real Estate Spending Cycles
Vacation Homes
46-50
Resorts
Trade-Up Homes
54 Vacation /
37- 42
Retirement
Homes
29-33
63-65
26
Starter Homes
18 21
Apartments / Shopping Centers
Offices
Colleges
20
24
28
32
36
40
44
Age
48
52
56
60
64
68
Mortgage Interest by Age
Average of Annual Numbers 1999-2009
Simple Four Season Economic Cycle
Eighty Years in Modern Times
Consumer Prices/
Inflation
Generation
Spending Boom
Stocks/
Economy
Spring
1940
1950
Source: HS Dent
1960
Summer
1970
1980
Fall
1990
2000
Winter
2010
2020
2030
Past Forecasts
“For the 1990s and Early 2000s – Our Greatest Boom:
Dow Rises to 10,000.”
Our Power to Predict, back cover (1989)
“After those enormous deficits into 1992, the government
will likely be in a balanced budget or surplus by 19982000.”
The Great Boom Ahead, pg 62 (1994)
“The next great depression will be from 2008-2023.”
The Great Boom Ahead, pg 16 (1994)
"No amount of government stimulus will prevent it…"
The Great Boom Ahead, pg 35 (1994)
Top Federal Individual Income Tax Rates
1913 - 2010
100%
90%
80%
Percentage
70%
60%
50%
40%
30%
20%
10%
Source: IRS
2003
1993
1983
1973
1963
1953
1943
1933
1923
1913
0%
Part Two: Debt

The Great Real Estate Bubble

The Greatest Credit Bubble in History
Total U.S. Debt - 2008
60,000,000,000,000
50,000,000,000,000
40,000,000,000,000
30,000,000,000,000
Federal Govt Trust Funds
Federal Govt
State and Local Govt
Financial Sector
Foreign
Corporate
Household Other
Consumer Credit
Home Mortgage
20,000,000,000,000
10,000,000,000,000
0
Government
$14Trn
Financial
$17Trn
Corporate
$11Trn
Consumer
$14Trn
1977 1982 1987 1992 1997 2002 2007 Total:
$56 Trn !
Source: Federal Reserve Flow of Funds Report
Unfunded Entitlement
Obligations In $Trillions
50
Includes Social Security
and Medicare
40
30
Addition of
Medicare Part D
20
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: The White House, US Treasury
$46 trillion
Unfunded Entitlement (Medicare + Social Security) + Underfunded
Entitlement Expenditures (Medicaid) = Among Largest Long-Term
Liabilities on USA Inc.'s Balance Sheet
Source: Kleiner, Perkins, Caufield & Byers - www.kpcb.com, USA Inc. February 2011
Total US Debt Obligations
Total US Debt
$56 trn
+
Unfunded Federal Liabilities $46 trn
=
Total Debt Obligations
$102 trn
7 x GDP !!!
Projected Federal Deficit for 2020
at Varying Revenue Levels ($ Billions)
CBO
HS Dent
Optimistic
HS Dent
Realistic
Total Revenues
$4,416
$3,029
$2,524
Mandatory Expenditures
$3,267
$3,267
$3,267
Discretionary Expenditures
$1,487
$1,487
$1,487
$916
$916
$916
$5,670
$5,670
$5,670
($1,254)
($2,641)
($3,146)
Net Interest
Total Expenditures
Deficit
Source: Congressional Budget Office Presidential Budget, HS Dent
Long Term House Prices vs.
Inflation
250
200
150
Home
Prices
100
50
0
1880
1900
1920
1940
1960
1980
2000
Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton University
Press, 2005.
2020
Japan Residential Land Price
National Index
250
200
150
Prices rose 2.6 times
in 5 years
100
50
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Japan Statistics Bureau
Japan Residential Land Price
National Index
250
200
150
100
Bubbles tend to go
back to where they
started
50
0
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Source: Japan Statistics Bureau
Borrowing Power of a Typical
Home Purchaser
Pre-Tax Income
Borrowing Power
2.8 times
Source: Amherst Securities
Average US Home Prices
Case-Shiller 10 City HPI: Jan 1994 – Mar 2011
250
Seasonally Adjusted
In Thousands
200
150
100
50
0
1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Standard & Poor’s Case-Shiller US 10-City Home Price Index
-33%
-55%
-65%
Case-Shiller Top Metro Areas
Percent Decline from Peak Values
-60%
-40%
-20%
0%
-54%
Phoenix
-52%
Las Vegas
-48%
Miami
Source: Standard & Poor’s Case Shiller US 20-City Index
Case-Shiller Top Metro Areas
Percent Decline from Peak Values
-60%
-40%
-20%
0%
-54%
Phoenix
-52%
Las Vegas
-48%
Miami
-36%
Minneapolis
-34%
Washington
Source: Standard & Poor’s Case Shiller US 20-City Index
Case-Shiller Top Metro Areas
Percent Decline from Peak Values
-60%
-40%
-20%
0%
-54%
Phoenix
-52%
Las Vegas
-48%
Miami
-36%
Minneapolis
-34%
Washington
-11%
Charlotte
- 8%
Dallas
Source: Standard & Poor’s Case Shiller US 20-City Index
Miami
Dallas
The Ticking Time Bomb
Total 90-Plus Delinquencies and
Foreclosures
Inventory is 50X Monthly Sales
Source: Information provided by LPS Applied Analytics
Part Three: Deflation

The Deleveraging of Credit Bubbles always
Leads to Deflation, not Inflation

The Restructuring of Massive Private Credit will
Outweigh Government Stimulus and Rising Debt
Simple Four Season Economic Cycle
Eighty Years in Modern Times
Consumer Prices/
Inflation
Generation
Spending Boom
Stocks/
Economy
Spring
1940
1950
Source: HS Dent
1960
Summer
1970
1980
Fall
1990
2000
Winter
2010
2020
2030
Monetary Base
Year/Year Percentage Change
This must lead to inflation!
Source: Hays Advisory
The Velocity of Money
GDP to Adjusted Monetary Base
25
20
15
10
5
1960
1970
1980
Source: St. Louis Fed, US BEA
1990
2000
2010
Household Net Worth
-$18
trn
70,000,000
65,000,000
60,000,000
55,000,000
50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
2002
2003
Source: Federal Reserve
2004
2005
2006
2007
2008
2009
-$26
trn +
GDP per $ of Debt
Source: © The Economist Newspaper Limited, “Repent at Leisure,” June 4, 2010
Median Household Net Worth
by Age of Head
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
<35 35-44 45-54 55-64 65-74 75+
Source: Federal Reserve, 2007 Survey of
Consumer Finances
Age
Net Worth of Top 1% of U.S. Households
1922-2007
50%
45%
1929 Stock Market Peak
40%
35%
30%
25%
20%
15%
1922 1932 1942 1952 1962 1972 1982 1992 2002 2012
Source: Edward Wolff, as printed in Wealth and
Democracy and New York University, 2010
Financial Assets of Top 1% of U.S.
Households
1922-2007
50%
45%
40%
35%
1983
1988
1993
Source: Edward Wolff, as printed in Wealth and
Democracy and New York University, 2010
1998
2003
2008
Income of Top 1% of Households
1920 - 2010
Source: New America Foundation
For More Information
www.hsdent.com