February 12, 2017 Aging

Risk/Reward Vol. 340
 
THIS IS NOT INVESTMENT OR TAX ADVICE.  IT IS A PERSONAL REFLECTION ON INVESTING.  RELY ON NOTHING STATED HEREIN.

What a week for firsts.  For the first time on Friday, on the strength of The Donald's promised tax cut, the Dow Jones Industrial Average closed at 20,269, the S&P 500 at 2316 and the NASDAQ at 5734, all record highs.  Last Sunday, for the first time a team overcame a 25 point deficit to win a Super Bowl.  On Tuesday, for the first time, a vice president was called upon to break a tie vote for confirmation of a cabinet officer.  Oh and here is first that didn't make the headlines.  For the first time in HUMAN HISTORY, sometime this coming week (or next week or at least sometime this year) those aged 65 and older will outnumber those under 5 years of age.  Not just in Japan, not just in Italy---but globally.  Moreover, according to the same source (a US Census Report entitled "An Aging World"), by 2050 (my 100th year), those aged 65 and older will outnumber those under 5---two to one.  To put this in perspective, the year I was born, there were nearly 3 times as many under age 5 globally as were 65 and older.  And if those numbers weren't startling enough, take a look behind them, and you will find that the decline is disproportionately within the developed world---the segment that drives our economy.  By 2050 ( a mere 33 years) the population of Africa will double becoming much younger than it is today.  But even that fact is not enough to offset global aging.

So how are the economies of the developed world planning to grow with so many unproductive grey hairs?  And how are they going to support their massive social programs which are geared to benefit the aged?  Thirty years ain't that long.  Perhaps Europe's decision to allow massive immigration is less motivated by humanitarian concerns than it is by economics.  At least that is what is suggested by a paper issued by  Germany's Federal Statistical Office (Destatis) which was reported this week in the German press.  According to Destatis, the projected decline in German population has been stemmed by recent immigration from the Mideast.  The paper goes on to stress the need to quickly integrate the migrants into the workforce so that they can begin to contribute money to the social welfare system.  So far integration has been slow with many migrants too unskilled or otherwise unwilling to find work.  Indeed, instead of alleviating the social burden, the migrants are adding to it.  Understandably, one is now seeing a rise in nationalist political parties throughout Europe.

So what is the US's plan?  Clearly, an open door is not in the cards under the current administration.  Maybe tax breaks, infrastructure spending and the repatriation of overseas dollars will provide a sugar high---just like low rates did for a while.  But from where is long term economic growth to come as the world ages?  Don't expect it from China whose building boom almost singly saved the world's economy post 2008  (See Vol. 74 www.riskrewardblog.blogspot.com) .  China faces its own demographic cliff thanks to its ill conceived (pun intended) One Child Policy.  Everything points to several more years of slow to no growth---promises from The Donald notwithstanding.

So why do I fixate on demographics?  Because a rapidly aging population equates to slow economic growth which in turn equates to low interest rates.  And as I have explained ad nauseam I fixate on interest rates.  They dictate my every investment move.

Thanks to a subscriber for giving me a head's up on BP's precipitous drop following a disappointing earnings call.  The source of the disappointment was its Chair's admission that BP cannot meet its ambitious capital spending plan and also pay its healthy dividend without oil hitting $60/bbl by year end.  I don't see the dividend suffering should that price not be met--- and it is the dividend that provides BP with price support.  I added to my position.