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HS Dent Independent Economic Research Company Forecast economic change based on three key tools: 1. Demographics and demographic trends 2. Predictable.

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Presentation on theme: "HS Dent Independent Economic Research Company Forecast economic change based on three key tools: 1. Demographics and demographic trends 2. Predictable."— Presentation transcript:

1 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

2 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 ” The Great Boom Ahead, pg 62 (1994) “The next great depression will be from ” The Great Boom Ahead, pg 16 (1994) "No amount of government stimulus will prevent it…" The Great Boom Ahead, pg 35 (1994)

3 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

4 HS DENT VIDEOS THE BASICS OF HS DENT THE SPENDING WAVE THE FOUR SEASONS THE HOUSING BUBBLE

5 Who Spends What in the Economy 2010 Source: U.S. Department of Commerce, Bureau of Economic Analysis

6 18-22 Single Young Married Young Family Family, College Kids 50+ Empty Nesters 60+ Retired Change in Spending at each Age & Stage of Life

7 The Immigration Adjusted Birth Index Immigration Adjusted Births

8 % 10% 50% 90% 99% InnovationMaturity.1% 99.9% Growth Percent Adoption The S-Curve

9 The Immigration Adjusted Birth Index Immigration Adjusted Births

10 Immigration- adjusted Births Lagged for Peak Spending Dow Adjusted for Inflation The Spending Wave Births Lagged for Peak Spending

11 -55% -65% -33% Average US Home Prices January 1994 – August 2010 Source: Standard & Poor’s Case-Shiller US 10-City Index Seasonally Adjusted In Thousands

12 Foreclosures & Delinquencies % Source: Information provided by LPS Applied Analytics, 2011

13 Mortgage Resets Trigger for the Next Financial Meltdown Source: Loan Performance, Amherst Securities 10/2010 9/2011

14 Real Personal Consumption Expenditures January 1995 through June 2010 Missing Growth Source: Bureau of Economic Analysis This happened when the US was adding 100 – 120,0000 more labor force age people per month

15 Daily Consumer Spending Monthly Average, January 2008 – January 2011

16 Notes from Tampa

17 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.www.stratfor.com 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 21 st 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 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.

18 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.

19 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.

20 presented by Harry S. Dent, Jr. (1993) (2011) Why This Will End Badly: A Look at The Global Debt Crisis

21 Debt to GDP Ratios of U.S. Debt, Data Source: Federal Reserve, 2011

22 Debt to GDP Ratios of Japan Debt Data Source: IMF and World Bank, 2011

23 Japan Household Savings Rate Source: “Outlook for Financing Japan’s Public Debt,” Kiichi Tokuoka, Cabinet Office. IMF, 2010

24 U.S. Government Deficit or Surplus In Millions Data Source: St. Louis Federal Reserve, 2011

25 U.S. Trade Balance In Billions Data Source: St. Louis Federal Reserve, 2011

26 US Private Debt Creation Data Source: Federal Reserve, 2011 Private Debt In Trillions $42 Trn

27 Government $14Trn Financial $17Trn Corporate $11Trn Consumer $14Trn Total: $56 Trn ! Source: Federal Reserve Flow of Funds Report Total U.S. Debt

28 Government $16.6Trn Financial $14.1Trn Corporate $10.8Trn Consumer $13.3Trn Total: $54.8 Trn ! Data Source: Federal Reserve Flow of Funds Report, 2011 Total U.S. Debt

29 Unfunded Entitlement (Medicare + Social Security) + Underfunded Entitlement Expenditures (Medicaid) = Among Largest Long-Term Liabilities on USA Inc.'s Balance Sheet Source: Kleiner, Perkins, Caufield & Byers - USA Inc. February 2011www.kpcb.com $66 Trillion!!!

30 Social Unrest and Global Food Prices Source: Australia Financial Review, 2011

31 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

32 Total Debt to GDP Ratios of Major Countries Data Source: IMF, 2011 Percent of Selected Debt to National GDP

33 United States, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP % Total Combined Debt to GDP!

34 Japan, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP 492% Total Combined Debt to GDP!

35 Ireland, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP 468% Total Combined Debt to GDP!

36 Britain, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 462% Total Combined Debt to GDP!

37 Portugal, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 379% Total Combined Debt to GDP!

38 Spain, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 367% Total Combined Debt to GDP!

39 France, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to Canada GDP 359% Total Combined Debt to GDP!

40 South Korea, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP 331% Total Combined Debt to GDP!

41 Italy, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 315% Total Combined Debt to GDP!

42 Canada, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/ % Total Combined Debt to GDP! Percent of Selected Debt to National GDP

43 Germany, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 286% Total Combined Debt to GDP!

44 Greece, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 291% Total Combined Debt to GDP!

45 Switzerland, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 312% Total Combined Debt to GDP!

46 Australia, Debt to GDP Ratios of Major Categories Data Source: Steve Keen of DebtDeflation.com, 2011 Percent of Selected Debt to National GDP 154% Total Combined Debt to GDP! *GOLD STAR*

47 China, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP 212% Total Combined Debt to GDP!

48 Brazil, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 147% Total Combined Debt to GDP!

49 India, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011 Percent of Selected Debt to National GDP 131% Total Combined Debt to GDP!

50 Russia, Debt to GDP Ratios of Major Categories Data Source: IMF, 2011; The Economist, “World Debt,” 8/24/2011 Percent of Selected Debt to National GDP 71% Total Combined Debt to GDP

51 Greece 10-Year Bond Index Source: Bloomberg % Bond Yields

52 Italy 10-Year Bond Index Source: Bloomberg % Bond Yields

53 BOND MARKET VALUES COUNTRY: ITALYGREECE INVESTMENT:$100, MARKET VALUE:$100,000.00$75,200.00$100,000.00$28, RATE:4%7%4%18% YR 1$104,000.00$80,464.00$104,000.00$33, YR 2$108,160.00$86,096.48$108,160.00$39, YR 3$112,486.40$92,123.23$112,486.40$46, YR 4$116,985.86$98,571.86$116,985.86$54, YR 5$121,665.29$105,471.89$121,665.29$64, YR 6$126,531.90$112,854.92$126,531.90$76, YR 7$131,593.18$120,754.77$131,593.18$89, YR 8$136,856.91$129,207.60$136,856.91$106, YR 9$142,331.18$138,252.13$142,331.18$125, YR 10$148,024.43$147,929.78$148,024.43$147,855.85

54 10-Year Treasury Bond Yield Source: Yahoo Finance

55 Japan Nikkei Bubble From Source: Masters and Johnson

56 Bubbles Are Like Orgasms Masters and Johnson Sexual Response Cycle Orgasm Excitement & Plateau (Arousal) Desire (Appetitive Source: Masters and Johnson

57 Dow Comparison vs Source: Yahoo Finance Adjusted for Inflation

58 Dow Comparison 2007 vs Data Source: Yahoo Finance, 2011

59 S&P 500 Scenario 1 January March 2012 Data Source: Yahoo Finance,

60 S&P 500 Scenario 2 January March 2012 Data Source: Yahoo Finance, 2011 a

61 Growth Rates of Real After Tax Income, Source: “Trends in the Distribution of Household Income Between 1979 and 2007,” Congressional Budget Office. October 2011

62 Income of Top 1% of Earners In 2007 Dollars Source: “Trends in the Distribution of Household Income Between 1979 and 2007,” Congressional Budget Office. October 2011

63 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

64 Source: National Economic Accounts, Statistics Canada, 2011 Who Spends What in the Canadian Economy 2010

65 Source: U.S. Department of Commerce, Bureau of Economic Analysis Who Spends What in the U.S. Economy 2010

66 Long Term House Prices vs. Inflation Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton University Press, 2005.

67 Key Economic Indicator #4 Case-Shiller 20-City Home Price Index Source: Standard & Poor’s Case-Shiller US 20-City Home Price Index Seasonally Adjusted In Thousands

68 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

69 Home Price to Income Ratio in Canada and Select Cities, 2011 Source:

70 30-Year Fixed Mortgage Rate January 2004 – January 2011 Source: Seasonally Adjusted Fixed Rate

71 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

72 Canada Growth of Retirees Source: HS Dent Foundation, United Nations Population Division, 2011 In thousands

73 Canada Workforce Growth Source: HS Dent Foundation, United Nations Population Division, 2011 In thousands

74 Canada Workforce Growth vs. Retiree Growth Source: HS Dent Foundation, United Nations Population Division, 2011 In thousands

75 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

76 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.

77 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:

78 Canada Old Age Dependency Ratio Source: HS Dent Foundation, United Nations Population Division, 2011

79 The Anatomy of a Ponzi Scheme Retirees Workers Current workers far outnumber retirees. Social Security fit this profile at its creation in the 1930s

80 Workers Retirees Current workers struggle to support an increasing share of retirees. Japan is facing this demographic reality. The Anatomy of a Ponzi Scheme

81 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. The Anatomy of a Ponzi Scheme

82 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

83 Health Care Expenditures Canada Personal Expenditures on Medical and Health Care Services (in thousands of Canadian $) Total Personal Expenditures $655,722$719,917$801,742$890,601$940,620 Total personal expenditure on medical care and health services 33,62338,03243,84850,43955,899 Medical care 15,39516,99719,61722,57925,623 Hospital care and the like 1,5771,7982,0442,3562,617 Other medical care expenses 4,5465,1785,4906,3716,688 Drugs and pharmaceutical products 12,10514,05916,69719,13320,971 Percentage of all personal expenditure on medical care and health services 5.1%5.3%5.5%5.7%5.9% Source: National Economic Accounts, Statistics Canada, 2011

84 Average Annual Expenditures on Health Care United States, Data Source: Bureau of Labor Statistics

85 Spending on Prescription Drugs by Age 81 Source: HS Dent Research


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