Yesterday I attended a Harry Dent conference in Los Angeles. For those not knowing Harry, he applies demographic principles to help gauge secular market trends driven by spending patterns. Baby boomers are the gorillas in the demographic space today. On average individual peak spending is age 46 with minor adjustments for different countries. He takes the immigration adjusted birth rates and shifts by 46 years to estimate peak spending for each country. Japan was the first major economy to go over the demographic cliff around 1989. The cliff is defined when the average individual reaches an age when spending peaks and then start spending less. The USA peak was next around 2007. Germany has a larger cliff than Japan and begins downward spending this year. Korea is like Japan on a 22-year lag. Buying patterns of baby boomers probably means that housing net demand will go down starting this year and continue down for decades. Also mentioned was the Chinese property bubble, the largest bubble in all of history.

We talked about how prior to 1989 Japan was an economic juggernaut that just fizzled out when it went over its demographic cliff and now has a coma economy, a bug looking for a windshield. Think about the repercussions for Europe with Germany reaching demographic headwinds this year is like Japan in 1989.

None of this bodes well for a continued long-term upward move in the market nor does is suggest that the QE process will ever be successful; it explains why QE has not generated significant inflation. QE has been fighting an underlying deflationary trend.

The few bright spots I noted were the following:
India, Mexico and SE Asia have positive oriented demographics. Overall spending may drop when the average man reaches 46 but health care spending peaks at age 74 and cruise ship vacations peak around age 70 suggesting pockets of activity going forward.

Most of this is explained in his most recent book The Demographic Cliff, published this year.