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John Mauldin - The Demographic Cliff and the Spending Wave

January 15, 2014 | About:

The Demographic Cliff and the Spending Wave

John Mauldin

January 15, 2014

For today's Outside the Box, my longtime friend Harry Dent is letting us have a look at chapter 1 of his latest (and I would say his greatest) book, The Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019. Harry's grasp of the impact of demographics on economies and investments is unexcelled and unambiguous. We all know that demographics really matter, but Harry has looked deeper and harder and understood better than any of us.

One of the key insights Harry brings to us is the concept of the Spending Wave. In other words, it's not just when you and the rest of your generation were born that matters, it's when you spend. At what age does your spending peak for housing or for child rearing or travel? Harry and his team have developed really good numbers on all of this, and from that data they have been able to consistently predict major macroeconomic trends. Harry summarizes the recent decades and the coming ones like this:

The demographic climaxes in average peak spending led to the rising boom from 1983 to 2007, then the slowdown in 2008 that will carry on until 2020 until trends bottom out and 2023 before trends turn up again. These numbers won't predict stock crashes and swings in the markets in between, but the big picture is undeniable.

There is a lot more to Harry's thesis than we can fit in an Outside the Box – chapter 1 alone runs 35 pages, and I can only bring you the first 10 here. So to help you bring Harry's work into immediate focus – and because I always like to compare notes with Harry – I recently asked him to sit down with me and talk over what we can expect to see in 2014. Some interesting ideas emerged at the intersection among demographics, debt, and deflation – three of the "Killer D's" that were my topic in last week's Thoughts from the Frontline – and we also looked at potential great trades for the coming year.

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