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Global Forecast 2009

I have been working with investments and market timing for more than 20 years during which time I have also studied and observed the rise and decline of societies, for example, economically and culturally etc. A new phenomenon in global demographic trend is the aging of Europe, Russia and the US, where the working population in their best age of working and spending has already begun to decline.

Demographic spending trends

Demographic spending trends are the key factors driving the economy of the developed consumer countries. These trends are predictable and can be used for forecasting. New generations of consumers have a predictable behavior with the spending wave peaking at the age of 47-49 and then followed by a decline. The populations estimate used in this article is taken from the United Nations. The spending wave is a concept developed by the HS Dent foundation.

Declining societies

The data projects that the spending waves for the US and Europe (incl. Eastern Europe) has topped relative to the rest of the world, the peak was around 2007-2008 and that the trend will be down until 2024-2025. In the coming years the number of the retired and the disabled will rise to unmanageable levels. Europe, Russia and Japan are expected to lose more than 30% of their population during the next several decades.

The source of the above chart is the HS Dent Foundation. The grey area shows the spending wave (birth adjusted for immigration with a 47-49 year lag left scale) in the United States. The populations estimate here is taken from the United Nations. The chart indicates that as we age we increase our spending until we reach our peak spending age (47-49 years). Notice the close correlation between the stock market (Dow index right scale) and the spending wave based on demographics. Other investments classes like real estate (not shown) has similar correlation to the spending wave.

The data indicates a new rise in the spending wave for the US after 2025 with a final top around 2050. Europe will only have a very weak partial recovery in their spending wave for 5-10 years and then continue the decline until the end of the century.

Other factors that may enforce the decline of Europe and the US

The high level of cost, debt and regulations as well as large and expensive civil services (relative to the size of the economy) are other factors that may contribute to the decline of the U.S. and Europe. Both regions are also increasingly dependent on importing resources. Each of these factors alone could make any further development difficult, not to mention their negative impact when combined.

Rising crime and civil unrest in a declining society and the risk of war

In Elliott Wave theory major social mood retrenchment results in rising crime, civil unrest and wars as humans express their collective negative mood with extreme collective actions. You may have noticed the recent rioting in Paris and Athens. The ultimate extreme collective action at the end of the decline is wars. A government/state needs time to plan and implement state sponsored terror and wars. The size of the wars are usually related to the size of the decline that induces it, meaning that the coming wars may be relatively large.

Rising societies

If you look at societies with rising spending waves, Asia and Latin Americas stand out mainly because they have reached a certain level of development enabling them to take advantage of their young population who have already joined or will join the working force. This will cause a rise in their spending waves within the coming decades.

Asia, having 60% of the worlds population, varies considerably with spending waves between different countries. For example, Japan peaked around 1990, India will peak around 2060-2070, while China will peak by the end the next decade. Is China getting old before it is getting rich ? Will India overtake China as the leading economic power in Asia ? Most countries in Asia have the advantage of a low cost of living and small civil services relative to the size of their economies. However, the problem in this region is water scarcity and increasing dependence on importing resources such as food, energy and minerals. The most powerful countries in Asia will probably challenge the domination of the western powers on the world stage, as well as participating in the race for natural resource control. This means that the region may be implicated in potential future wars.

Latin Americas spending waves should peak around 2050-2060. This region is interesting because of the following advantages: it is very rich in commodities such as an abundant supply of food, metals and energy, as well as enormous water resources. In addition they have a low population density, a good climate, a low cost of living and smaller civil services relative to the size of their economies. The region usually escapes major wars.

How to take advantage of the new global trends

The above gives you a global perspective for different regions of the world. However, we will be looking at long term cycles like the Kondratieff Cycle as well as the Elliott Wave pattern in order to be able to take full advantage of the new trends. This will be covered in the next few articles.

Copyright © 2009 Geir Solem

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