HS Dent
Independent Economic Research Company
Forecast economic change based on three key
tools:
1. Demographics and demographic trends
2. Predictable consumer spending patterns,
and
3. Technological innovation acceptance rates
H.S. Dent
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)
Forecasting Doesn’t
Always Work Out
I think there is a world market for maybe five computers.
- Thomas J. Watson, 1943, Chairman of the Board of IBM
We don't like their sound, and guitar music is on the way
out.
- Decca Recording Co. rejecting the Beatles, 1962
With over 50 foreign cars already on sale here, the
Japanese auto industry isn't likely to carve out a big
slice of the U.S. market.
-Business Week, 1958
HS DENT VIDEOS
•THE BASICS OF HS DENT
http://www.hsdent.com/hsvid_basicsofhsdent
•THE SPENDING WAVE
http://www.hsdent.com/hsvid_spendingwave
•THE FOUR SEASONS
http://www.hsdent.com/hsvid_fourseasons
•THE HOUSING BUBBLE
http://www.hsdent.com/hsvid_housingbubble
Who Spends What
in the Economy 2010
Personal
Consumption
Expenditures
-3.7%
20.5%
Gross Private
Domestic
Investment
Government
Consumption
Expenditures
12.6%
70.5%
Source: U.S. Department of Commerce, Bureau of Economic Analysis
Net Exports
Change in
Spending at each
Age & Stage of Life
46-50
22-30
31-42
Family,
50+
18-22
Young
Young
College
Empty
60+
Single
Married
Family
Kids
Nesters
Retired
The Immigration Adjusted Birth Index
Immigration Adjusted Births
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1930
1950
1970
1990
2010
Percent Adoption
The S-Curve
100
90
80
70
60
50
40
30
20
10
0
Innovation
Growth
Maturity
90%
50%
.1%
1%
10%
99%
99.9%
The Immigration Adjusted Birth Index
Immigration Adjusted Births
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
1930
1950
1970
1990
2010
The Spending Wave
Births Lagged for Peak Spending
Dow Adjusted
for Inflation
Immigrationadjusted Births
Lagged for Peak
Spending
Average US Home Prices
January 1994 – August 2010
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 Index
-33%
-55%
-65%
Foreclosures & Delinquencies %
1995-2011
Source: Information provided by LPS Applied Analytics, 2011
Mortgage Resets
Trigger for the Next Financial Meltdown
9/2011
10/2010
Source: Loan Performance, Amherst Securities
Real Personal Consumption Expenditures
January 1995 through June 2010
10,500
10,000
Missing
Growth
9,500
9,000
8,500
8,000
7,500
7,000
6,500
6,000
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
5,500
This happened when the US was adding 100 – 120,0000 more labor force age people
per month
Source: Bureau of Economic Analysis
Daily Consumer Spending
Monthly Average, January 2008 – January 2011
Notes from Tampa
DR. GEORGE FRIEDMAN
•
Dr. Friedman is the founder and Chief Executive Officer of Stratfor (www.stratfor.com), a company he began in
1996 that is now a leader in the field of private intelligence. Dr. Friedman guides Stratfor’s strategic vision,
helping shape the firm’s long-range geopolitical forecasts as well as overseeing and tasking tactical intelligence
operations.
•
Dr. Friedman is also the author of numerous articles and books on national security, warfare and intelligence. His
most recent book, America’s Secret War (Doubleday, 2004), a Barron’s Best Book of 2004, describes America’s
covert and overt efforts in the global war against terrorism. Dr. Friedman’s next book, The Next Hundred Years: A
Forecast for the 21st Century, is set for a January 2009 release.
•
Major television shows and radio programs such as CNN’s Lou Dobbs, Fox News’s The O’Reilly Factor, and
NPR frequently invite Dr. Friedman to appear as a national security and international affairs intelligence expert.
Barron’s has cited Stratfor’s analysis on numerous occasions and Barron’s cover article featured an interview
with Friedman in October 2001. He has also been featured in Time magazine, The New York Times Magazine
and The Wall Street Journal and quoted in reference to global issues in the New York Times, USA Today,
Fortune, International Herald Tribune and many other domestic and international publications. Dr. Friedman has
been the keynote speaker at numerous conferences and industry specific events for private organizations and
government agencies.
•
Dr. Friedman received his bachelor’s degree from the City College of the City University of New York and holds a
Ph.D. in government from Cornell University.
EXCERPTS FROM BOOK:
THE NEXT 100 YEARS
•
A little over a decade away from the likely commencement of the first crisis of the twenty-first
century, we should already be able to glimpse its beginnings. There are three storms on the
horizon. The first is demographic. In the late 2010s, the major wave of baby boomers will be
entering their seventies, cashing in equities and selling homes to live off the income. The
second storm is energy. Recent surges in the cost of oil may only be a cyclical upturn
following twenty-five years of low energy prices. These surges could also be the first
harbingers, though, of the end of the hydrocarbon economy.
Finally productivity growth from the last generation of innovations is peaking.
•
The crisis of 2008 was not really a demographic driven crisis. But it showed a process that
will reveal itself more fully over the next twenty years: an equity crisis driven by
demographics. Declines in residential real estate prices are startling. They have not been
drivers in the past. This one is hardly a defining moment. Think of it as a straw in the wind,
a sign of things to come – from pressure on real estate to greater government control of the
economy.
When we talk of economic crisis, all fears turn immediately to the Great Depression. In fact,
historically, the terminal crisis of a cycle has usually resembled deep discomfort more than
the profound agony of the Depression. The stagflation of the 1970s or the short, sharp crises
of the 1870s are far more likely than the prolonged, systemic failure of the 1930s. As will be
true for the crisis of the 2020s, we don’t have to be facing a Great Depression in order to be
confronting a historical turning point.
MORE FROM NEXT 100 YEARS
•
Here’s a fact that should get you thinking: When government benefits set the
retirement age at 65, the average life expectancy for a male was 61. It makes us
realize how little they were designed to pay out. The sudden surge in life expectancy
has changed the math of retirement entirely.
•
Retirees will divide into 2 groups . Those lucky or smart enough to have equity
reserves or houses will be forced to sell those assets. The second group will have little
or no assets. If they rely on government benefits, this will leave them in abject poverty.
The pressure to maintain standards of living & health care for the baby boomers will
be intense, & they will continue to retain political power. Retirees vote
disproportionately to other group, & the boomer vote will be particularly huge. They will
vote themselves benefits.
•
The gov’ts will be forced to either increases taxes or borrow heavily.
Why This Will End Badly:
A Look at The Global Debt Crisis
presented by
Harry S. Dent, Jr.
(1993)
(2011)
Debt to GDP Ratios of U.S. Debt,
1947-2011
Data Source: Federal Reserve, 2011
Debt to GDP Ratios of Japan Debt
1980-2010
Data Source: IMF and World Bank, 2011
Japan Household Savings Rate
1985-2005
Source: “Outlook for Financing Japan’s Public Debt,” Kiichi Tokuoka, Cabinet Office. IMF, 2010
In Millions
U.S. Government Deficit or
Surplus 1970-2011
Data Source: St. Louis Federal Reserve, 2011
U.S. Trade Balance
In Billions
1970-2011
Data Source: St. Louis Federal Reserve, 2011
US Private Debt Creation
1980-2011
In Trillions
$42
Trn
Data Source: Federal Reserve, 2011
Private
Debt
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
Total U.S. Debt - 2010
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
Government
$16.6Trn
Financial
$14.1Trn
Corporate
$10.8Trn
20,000,000,000,000
10,000,000,000,000
Consumer
$13.3Trn
0
1977
1985
1993
2001
2009Total:
$54.8 Trn !
Data Source: Federal Reserve Flow of Funds Report, 2011
Unfunded Entitlement (Medicare + Social Security) + Underfunded
Entitlement Expenditures (Medicaid) = Among Largest Long-Term
Liabilities on USA Inc.'s Balance Sheet
$66 Trillion!!!
Source: Kleiner, Perkins, Caufield & Byers - www.kpcb.com, USA Inc. February 2011
Social Unrest and Global
Food Prices
Source: Australia Financial Review, 2011
Shares of GDP
• GDP is measured in 4 main categories:
• Consumer Spending, Government
Spending, Private Investment (Business)
and Net Exports
• Below is a comparisons of the shares of
GDP in World
Percent of Selected Debt to National GDP
Total Debt to GDP Ratios of
Major Countries
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
United States, Debt to GDP
Ratios of Major Categories
326-372% Total Combined Debt to GDP!
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
Japan, Debt to GDP Ratios of
Major Categories
Data Source: IMF, 2011
492% Total Combined
Debt to GDP!
Percent of Selected Debt to National GDP
Ireland, Debt to GDP Ratios of
Major Categories
468% Total Combined
Debt to GDP!
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
Britain, Debt to GDP Ratios of
Major Categories
462% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Portugal, Debt to GDP Ratios
of Major Categories
379% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Spain, Debt to GDP Ratios of
Major Categories
367% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to Canada GDP
France, Debt to GDP Ratios of
Major Categories
359% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
South Korea, Debt to GDP
Ratios of Major Categories
331% Total Combined
Debt to GDP!
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
Italy, Debt to GDP Ratios of
Major Categories
315% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Canada, Debt to GDP Ratios
of Major Categories
259% Total Combined Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Germany, Debt to GDP Ratios
of Major Categories
286% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Greece, Debt to GDP Ratios of
Major Categories
291% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Switzerland, Debt to GDP
Ratios of Major Categories
312% Total Combined Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
Australia, Debt to GDP Ratios
of Major Categories
100
154% Total Combined
Debt to GDP!
80
60
*GOLD
STAR*
Government
Financial
Business
Household
40
20
N/A
0
Australia
Data Source: Steve Keen of DebtDeflation.com, 2011
China, Debt to GDP Ratios of
Major Categories
Percent of Selected Debt to National GDP
212% Total Combined Debt to GDP!
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
Brazil, Debt to GDP Ratios of
Major Categories
147% Total Combined
Debt to GDP!
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
Percent of Selected Debt to National GDP
India, Debt to GDP Ratios of
Major Categories
131% Total Combined
Debt to GDP!
Data Source: IMF, 2011
Percent of Selected Debt to National GDP
Russia, Debt to GDP Ratios of
Major Categories
71% Total Combined Debt to GDP
Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011
% Bond Yields
Greece 10-Year Bond Index
Source: Bloomberg
% Bond Yields
Italy 10-Year Bond Index
Source: Bloomberg
BOND MARKET VALUES
COUNTRY:
ITALY
GREECE
INVESTMENT:
$100,000.00
$100,000.00
$100,000.00
$100,000.00
MARKET VALUE:
$100,000.00
$75,200.00
$100,000.00
$28,250.00
RATE:
4%
7%
4%
18%
YR 1
$104,000.00
$80,464.00
$104,000.00
$33,335.00
YR 2
$108,160.00
$86,096.48
$108,160.00
$39,335.30
YR 3
$112,486.40
$92,123.23
$112,486.40
$46,415.65
YR 4
$116,985.86
$98,571.86
$116,985.86
$54,770.47
YR 5
$121,665.29
$105,471.89
$121,665.29
$64,629.16
YR 6
$126,531.90
$112,854.92
$126,531.90
$76,262.40
YR 7
$131,593.18
$120,754.77
$131,593.18
$89,989.64
YR 8
$136,856.91
$129,207.60
$136,856.91
$106,187.77
YR 9
$142,331.18
$138,252.13
$142,331.18
$125,301.57
YR 10
$148,024.43
$147,929.78
$148,024.43
$147,855.85
10-Year Treasury Bond Yield
1989-2023
Source: Yahoo Finance
Japan Nikkei
Bubble From 1985-1989
40000
35000
30000
25000
20000
15000
10000
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Source: Masters and Johnson
Bubbles Are Like Orgasms
Masters and Johnson Sexual Response Cycle
Orgasm
Excitement &
Plateau
(Arousal)
Desire
(Appetitive
Source: Masters
and Johnson
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Dow Comparison
Adjusted for Inflation
1968-1974 vs. 2007-2013
Source: Yahoo Finance
Dow Comparison
2007 vs. 2011
Data Source: Yahoo Finance, 2011
S&P 500 Scenario 1
January 2011- March 2012
2
2
4
1
3
1
Data Source: Yahoo Finance, 2011
S&P 500 Scenario 2
January 2011- March 2012
a
Data Source: Yahoo Finance, 2011
Growth Rates of Real After Tax
Income, 1979-2007
Source: “Trends in the Distribution of Household Income Between 1979 and 2007,” Congressional Budget Office. October 2011
Income of Top 1% of Earners
In 2007 Dollars
1979-2007
Source: “Trends in the Distribution of Household Income Between 1979 and 2007,” Congressional Budget Office. October 2011
Looking Forward on the
Canadian Economy
• What Is Examined:
• Shares of Gross Domestic Product
• Home Price to Income Ratio
• Growth of Retiree and Workforce
Populations
• Health Care Spending
• Models of U.S. Spending Used for
Comparison
Who Spends What
in the Canadian Economy 2010
Personal
Expenditures
-1.7%
25.7%
Gross Business
Expenditure &
Investment
58.8%
Government
Spending
Net Exports
17.1%
Source: National Economic Accounts, Statistics Canada, 2011
Who Spends What
in the U.S. Economy 2010
Personal
Consumption
Expenditures
-3.7%
20.5%
Gross Private
Domestic
Investment
Government
Consumption
Expenditures
12.6%
70.5%
Source: U.S. Department of Commerce, Bureau of Economic Analysis
Net Exports
200
1000
180
900
160
800
140
700
Home Prices
120
600
100
500
80
400
60
Building Costs
300
Population
40
200
Interest Rates
20
0
1880
100
0
1900
1920
1940
1960
Year
Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition,
Princeton University Press, 2005.
1980
2000
2020
Population in Millions
Index or Interest Rate
Long Term House Prices vs.
Inflation
Key Economic Indicator #4
Case-Shiller 20-City Home Price Index
Seasonally Adjusted
In Thousands
220
200
180
160
140
120
2010
2008
2006
2004
2002
2000
100
Source: Standard & Poor’s Case-Shiller US 20-City Home Price Index
Home Price to Income Ratio
Explained
• The measure of home price to income is
the ratio of the average selling price of a
home in a given geography divided by the
median income of that same area
• This measure is an indicator of
affordability and housing trends
C
Source: www.numbeo.com
Pe
C
ie
w
a
l
Va
eg
in
a
r
or
ia
Vi
ct
nc
ou
ve
To
ro
nt
o
R
te
rb
or
ou
gh
O
tta
re
a
on
t
il t
on
on
on
t
am
M
H
ar
r
ra
ge
al
ga
ry
B
Av
e
Ed
m
an
ad
a
Home Price to Income Ratio in
Canada and Select Cities, 2011
12
10
8
6
4
2
0
30-Year Fixed Mortgage Rate
January 2004 – January 2011
7.0
Seasonally Adjusted
Fixed Rate
6.5
6.0
5.5
5.0
4.5
Source: www.mortgage-x.com
2011
2010
2009
2008
2007
2006
2005
2004
4.0
Retirees and Workforce Growth
• Retirees are defined by those aged 65 and
over.
• Workforce population are those between
ages 15 and 64
• This example uses projections based on
the medium variant of fertility rate
• The next chart shows both demos overlaid
Canada Growth of Retirees
16,000
14,000
Population 65+
In thousands
12,000
10,000
8,000
6,000
4,000
2,000
Source: HS Dent Foundation, United Nations Population Division, 2011
2100
2090
2080
2070
2060
2050
2040
2030
2020
2010
2000
1990
1980
1970
1960
1950
0
Canada Workforce Growth
30,000
In thousands
25,000
20,000
Workforce Population
15,000
10,000
Source: HS Dent Foundation, United Nations Population Division, 2011
2100
2090
2080
2070
2060
2050
2040
2030
2020
2010
2000
1990
1980
1970
1960
1950
5,000
Canada Workforce Growth vs.
Retiree Growth
16,000
32000
14,000
27000
In thousands
12,000
10,000
22000
8,000
Retireees
Workforce
17000
6,000
4,000
12000
2,000
Source: HS Dent Foundation, United Nations Population Division, 2011
2100
2090
2080
2070
2060
2050
2040
2030
2020
2010
2000
1990
1980
1970
1960
7000
1950
0
The Silver Tsunami
*80 million boomers born
between 1946 and 1960
*10,000 a day are now retiring
*Gov’t benefits turns cash flow
negative by 2017
* Gov’t benefits runs out of
money in 2041
*Boomers will be followed by
only 65 million gen-Xer’s
*don’t count on selling your
house to your kids, especially if
they are still living in the
basement
Old Age Dependency Ratio and
What it Means to Society
• Beyond a simple trajectory of a given
demographic, the old age dependency
ratio shows the potential strain the elderly
would put on the larger population
• This ratio is the amount of projected 65+
year olds to the number of those projected
to be of workforce age.
Continued
• The higher the ratio, the greater amount of
old age dependents are being supported
by workers
• The consequences of such lopsided
demographics are illustrated by the “Ponzi
Scheme” below:
Canada Old Age Dependency
Ratio
Ratio of Retirees to Workers
60
50
40
30
20
10
Source: HS Dent Foundation, United Nations Population Division, 2011
2095
2085
2075
2065
2055
2045
2035
2025
2015
2005
1995
1985
1975
1965
1955
0
The Anatomy of a Ponzi Scheme
Current workers far outnumber retirees.
Retirees
Social Security fit this profile at its creation in
the 1930s
Workers
The Anatomy of a Ponzi Scheme
Retirees
Current workers struggle to support an
increasing share of retirees.
Japan is facing this demographic reality.
Workers
The Anatomy of a Ponzi Scheme
Retirees
Workers
The most extreme example, in which a
small population of workers supports a
mass of retirees.
China will face a similar crisis due to a
generation of the One Child Policy.
Health Care Spending
• Spending on Health Care in Canada as a
percent of total consumer spending rose
over the last decade
• The following charts show that, using the
United States as a guide, health care
spending increases with age
• As a larger portion of the Canadian
population ages, spending will continue to
increase
Health Care Expenditures
Canada
Personal Expenditures on
Medical and Health Care
Services (in thousands of
2002
2004
2006
2008
2010
$655,722
$719,917
$801,742
$890,601
$940,620
Total personal expenditure
on medical care and health
services
33,623
38,032
43,848
50,439
55,899
Medical care
15,395
16,997
19,617
22,579
25,623
Hospital care and the like
1,577
1,798
2,044
2,356
2,617
Other medical care
expenses
4,546
5,178
5,490
6,371
6,688
Drugs and pharmaceutical
products
12,105
14,059
16,697
19,133
20,971
Percentage of all personal
expenditure on medical
care and health services
5.1%
5.3%
5.5%
5.7%
5.9%
Canadian $)
Total Personal Expenditures
Source: National Economic Accounts, Statistics Canada, 2011
Average Annual Expenditures on Health
Care United States, 2000-2009
$4,500
$3,500
$2,500
$1,500
$500
Under 25
25-34
Data Source: Bureau of Labor Statistics
35-44
45-54
55-64
65+
Spending on Prescription Drugs
by Age
180
81
160
140
$ Per Year
120
100
80
60
40
20
0
20
25
30
35
40
45
50
55
60
65
70
Age of Head of Household
Source: HS Dent Research
75
80