Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Demographics, Stocks Bear Market, Global Recession And Deflation

Stock-Markets / Deflation Jan 07, 2014 - 04:42 PM GMT

By: John_Hampson

Stock-Markets

Historically, demographic trends have correlated with secular bulls and bears in financial assets, economic growth/recession and inflation/deflation. Demographic forecasts are reliable because future trends were set in place with past swells and shrinkages in birth numbers. They would change if a country was subject to large scale death (war, pandemic, or similar) or the government henceforth adopted radical immigration policies. Demographics are particularly potent in countries that are relatively closed to migration, so understand that China has the smallest percentage of immigrants of any country (0.1% of the population), and Japan just 1.9% (compared to USA, UK and Germany all over 10%). My focus is on USA, China, Japan, Germany and UK, as collectively they make up 50% of world GDP. Know that whilst the European Union abolished barriers to movement within it, the demographics across all the member nations are uniformly poor.


1. DEFLATION

Young labour force percentage of population (aged 15-40) and dependency ratios (inverted – old and young versus the working population) have both historically correlated with inflation/deflation. A swell of people entering the workforce works up price inflation through spending, whereas more people entering old age relative to the work force is disinflationary through saving and disinvestment (read more HERE).

In the first chart above, we see the UK alone is currently in a small window of young labour force growth, whilst in the second chart China is just peaking out in dependency ratio (inverted). This is reflected in reality, with the UK currently registering the highest producer price inflation and China the highest consumer price inflation of the five. At this point in time, we generally see trends of disinflation. Demographics predict this will turn into outright deflation, and that deflation should be the norm for the next couple of decades (barring countries with inflationary demographics becoming much more dominant globally, such as India and Brazil).

2. GLOBAL RECESSION

Due to globalisation and an increasingly open world economy, recessions around 2009, 2001, 1998, 1991 and 1982 have all been global in nature. Due to the US contributing 22% of world GDP, particular attention needs to be paid to indicators of future US growth, with China second.

Dependency ratios (inverted – old and young versus the working population) have historically correlated with economic growth / recession. That chart is presented in section 1. above. The picture for the next 2 decades is bleak.

Stepping aside from demographics for a moment, levels of debt have also been shown to assist or impede growth historically. Where public debt to GDP has exceeded 90%, economic growth has struggled. For 2014, Japan will be around 230%, UK and USA around 115% and Germany 85%.  China has the lowest ratio of public debt of the five, but its broader debt has been ballooning since 2008. Including corporate and household debt, China’s total debt to GDP has reached 218% of GDP (from around 130% in 2008).

3. EQUITIES BEAR, REAL ESTATE BEAR

Demographic trends in middle-to-young ratio (aged 35-49 / 20-34), middle-to-old ratio (35-49 / 60-69), percentage net investors (35-49 / all) and dependency ratios (charted in 1. above) have all been shown to have a correlation with stock market and real estate market performance historically, on a longer term secular level. There are young borrowers/spenders, middle-aged investors (partially investing for retirement) and old-ages disinvestors. If the middle group is growing relative to the others, then we have a growing demand for the stock market. Similarly, the old and the young don’t typically buy houses, so a swelling middle-aged group relative to the others is an environment for a housing boom, and vice versa (read more HERE).

Using the weighted average composite as our overall guide looking out to mid-century, M/Y is flat whilst M/O and NI are down, suggesting long term ‘buy and hold’ may be a strategy doomed to the past, to be replaced by ‘short and hold’. Add in Dependency Ratios from 1. above and the picture worsens further. Within those overall trends there are positive windows for individual countries, for instance the USA sees M/Y, M/O and NI measures rising together between around 2025 and 2030, and the composites also suggest that period could be the backdrop to a cyclical bull. However, when the composite trends above from 1980-2000 are compared to what lies ahead of us now, the contrast is stark and suggests enduring downwards pressure on equities and real estate, in long secular bear markets.

The longer term fortunes of bonds have also historically correlated with demographic trends.

This CS graphic suggests yields will remain fairly low and contained, as demand for bonds will be maintained. However, through to 2020, the bias in yields, aside Japan, is overall upwards, suggesting net selling on balance. It is my view that gold, as the historic anti-demographic, is due to be the lead asset in the period ahead, as the collective trends above suggest deflation, recession, and net selling of equities, real estate and bonds.

SUMMARY

A) Historic correlations in demographic trends and secular asset cycles, growth/recession and inflation/deflation. B) Unprecedented collective demographic downforces now in place, with evidence of impact in economic data. C) Downtrends in play for much of the first half of this century, suggesting tough times for the global economy and no safety in equities or real estate.

Europe has structural problems, a cautious central bank, and a relatively strong currency, mirroring 1990s Japan and making it the candidate for the first into deflation. China is closed to migration and thus trapped in a sharp demographic reversal, largely the result of its 1 child policy. Previous breakneck growth was built on exports, the market for which collapsed in recent years, leaving it with declining GDP and excess capacity. Stimulus response in 2008 was to invest in even more infrastructure, increasing the excess capacity issue. Non-public debt is ballooning whilst the authorities attempt to tighten, resulting in two cash crunches already this year, as well as high profile company bankruptcies. That makes China the candidate for delivering a 2008-style global crisis.

John Hampson, UK / Self-taught global macro trader since 2004
www.solarcycles.net (formerly Amalgamator.co.uk) / Predicting The Financial Markets With The Sun

© 2014 Copyright John Hampson - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in