Book Review-The Next Great Bubble Boom

[Michael]

I perused Harry S Dent's new book. He still thinks demographics will keep the bull going through 2009, but now he thinks the decennial cycle is more powerful than the demographic cycle (stocks perform better in the 2nd half of the decade due to corporate managers using 10 year plans that come to fruition then). He also advises the sell in May and go away strategy during the 2nd year of Presidential terms, because incumbent Presidents are getting the pain over then so that they can goose the economy for the next election in years 3 and 4.

An interesting point he made is that rapidly increasing population has played a large role in economic growth for centuries, but population is expected to soon stabilize or decline in many nations. Declining population could result in declining economic stats. Once the bear comes, areas such as Western Europe may not recover significantly during our life times.

 

[wabmester]

stocks perform better in the 2nd half of the decade due to corporate managers using 10 year plans that come to fruition then

Maybe it's just my lack of exposure to large corps, but how many really work against a 10-year plan each decade? I just find it really hard to believe that there is any such effect.

An interesting point he made is that rapidly increasing population has played a large role in economic growth for centuries, but population is expected to soon stabilize or decline in many nations. Declining population could result in declining economic stats. Once the bear comes, areas such as Western Europe may not recover significantly during our life times.

This point seems more serious. The Congressional Budget Office study I referenced in another thread predicts that US GDP will fall to below 2% and stay there for a *long* time.

Even Scott Burns had an article on this not too long ago. He recommended buying EPP (Asia ex-Japan) as a demographic play.

 

[dex]

I've been corporte life for all my life - (I'm 49) I never heard a any discussion of a 10 year plan. The corporations I worked for only had plans 3 years out - the next year's budget and two other years.

In the 80's; when the Japanese were going to rule the world it was said they were so successful because they didn't manage quarter to quarter but had 100 year plans. They must be in a bit of a lull.

 

[dex]

An interesting point he made is that rapidly increasing population has played a large role in economic growth for centuries, but population is expected to soon stabilize or decline in many nations. Declining population could result in declining economic stats. Once the bear comes, areas such as Western Europe may not recover significantly during our life times.

As to population it is expected to peak at about 9 Billion in about 2050 or so - I'll be dead I hope, by then.
Many European countries do have negative population growth because of declining birth rates and restrictive immigratioin policies. The USA does have similar birth rate issues but, immigration more than offsets that. So he might be correct about Europe. But what is the issue or problem with Europe? If you don't invest in Europe it should only create opportunities. If you want to visit Europe it should be less crowded and maybe cheaper.

I think our current population is about 6.5 Billion can you even imagine life in India or China with a world population of 9.5 billion? Travel and see the world now there won't be room to see it in the future. You just might need to bring your own water and air to breath.

 

[cute fuzzy bunny]

According to this, and my experience, his cause and effects are almost 100% wrong. He does identify some causes and some effects, but they arent in synch.

For example, while its true that every company I worked for had long range planning, I dont remember a single one tying it to a firm ten year cycle, and even if they did, theres no sense in thinking they'd all start in 00 and work through 09.

Further, while its also true that the last 2 years of each presidential cycle are good economically, and the first two arent, the cause is not 'getting over the pain'. The cause is economic programs specifically targetted and timed to peak at election time, after which they run out of gas. The next set of programs are then retimed to peak at election time again to keep the 'ruling party' in the house.

I would also completely disagree that western europe will be hardest hit economically. One of the biggest problems with an economic slog has to do with energy. Europe, especially western europe, is one of the lower users of energy worldwide; we're one of the highest. The worst hit areas will be emerging markets and 3rd world areas like Africa that have weak fledgling economies or total dependence on energy for survival.

Isnt this the dipsy doodle who thinks the Dow is going to 40,000 by the end of the decade?

 

[John Galt]

Briefly.............I spent almost my whole career in industry. The slightly larger companies all did some sort
of long range planning (5 years and out). This sucked up lots of management time, but in my almost 40
years working I never saw ANY benefits to trying
to
predict that far in advance. I have no reason to think
this sort of exercise works any better in other arenas.

JOhn Galt

 

[cute fuzzy bunny]

Our LRP ran about 5-7 years. It was constructive as a rough planning and roadmapping exercise, but counterproductive when we decided to lay in too much detail. Sometimes people became 'married' to the products, directions and planning and resisted changing it as conditions changed.

And of course every organization is chock full of nimrods who want to continue detailing and documenting every agonizing detail...

 

[Michael]

The explanation for the decennial cycle did not seem to me to be based upon extensive research, but rather anecdotal evidence.  It appear to me to  have been adopted as an explanation for the post Y2k bear, which took him by surprise, and shocked him by its severity.  Much of the work on the statistics of the cycle was done by Ned Davis. The 10 year cycle has been reaonably consistent during the 20th century, but no one has conclusively proven the reason for its existence.

Yes, he is still predicting Dow 40k and Nasdaq 13K by 2009, followed by the long, cold winter that will drop them back below 10K and 2k.  The 40k number is derived by looking at charts of past performance of the Dow during bull markets, and extending the bullish trend line upwards until 2009 or so.  At least this is my current understanding of his algorithms.

 

[wabmester]

Scott Burns published another short article on demographic trends this morning:

http://www.dallasnews.com/sharedcon...umns/2004/stories/091904dnbusburns.a15f5.html

Interesting stats include percent of population over 60 in 2050:

US: 26.9%
Italy and Japan: 42.3%
Germany: 38.1%
historical average: <5%

Now if the CBO thinks that our aging population will slow GDP growth to below 2%, imagine what it'll do to Italy, Japan, and Germany....

 

[Super Lurker]

Several posters on this thread have questioned whether large
corporations do long range planning on the order of 10 years.
The answer is a definite *yes*. I have been involved with
planning 20 years out with quarterly milestones. The real issue is
not whether or not they do it, the issue is whether or not it makes
any sense. It doesn't. In the case of my corporation, the CEO
typically doesn't last 20 years. The new CEO comes in and
all bets are off.

In the case of my company, it does some defense work. Defense
is a monopsony (the opposite of a monopoly: several suppliers
and only one buyer). The DoD currently has a "Joint Vision
2020" that supposedly, among other things, will drive defense
spending through the year 2020. If you want DoD business,
you simply do not tell the DoD that thery are FOS. So you
"plan" for Joint Vision 2020. My personal view is that Iraq
has pretty much given the Joint Vision a mortal wound, but
you have to wait for the DoD to say it

--
Able to leap over tall buildings in two or more bounds.

 

[sgeeeee]

. . .Interesting stats include percent of population over 60 in 2050:

US: 26.9%
Italy and Japan: 42.3%
Germany: 38.1%
historical average: <5%

. . .

While I believe that demographic concerns are certainly important, these statistic are surely of little value in estimating the problem. Today, a significant percent of our population -- even over the age of 70 -- is still active and does not require institutional care. I don't know if the same were true of the population over 60 in the 1800's (when they represented only 5% of the population).

 

[sgeeeee]

Several posters on this thread have questioned whether large
corporations do long range planning on the order of 10 years.
The answer is a definite *yes*. I have been involved with
planning 20 years out with quarterly milestones. . . . .

While I have seen (and participated) this kind of planning too, it was only in companies that catered to the pentagon. I never witnessed any situation where an executive's bonus, salary or advancement were tied to those goals. In addition, the half-life of most executives is far shorter than a decade, so even if their performance were tied to such goals, I don't see how it would have much effect on the stock market.

 

[cute fuzzy bunny]

While I believe that demographic concerns are certainly important, these statistic are surely of little value in estimating the problem. Today, a significant percent of our population -- even over the age of 70 -- is still active and does not require institutional care. I don't know if the same were true of the population over 60 in the 1800's (when they represented only 5% of the population).

Obviously not.

I have a clue for the writer about the post 2000 bear market. Stocks were ridiculously overpriced and were driven by tulip mania.

One does not take abberant trend lines and extend them out another 5 years.

To get to 40k (possible, although it would indicate further insanity, not mathematical, calculable or psychologically determinable) we'd have to have something like 25%+ growth annually through 2008.

So people really make money writing books like these, hmm?

(shaking head)

 

[wabmester]

While I believe that demographic concerns are certainly important, these statistic are surely of little value in estimating the problem.

I guess the question to ask is can anything *good* come out of stats like these?    Most of us use this forum because we used FIREcalc to come up with a worst-case estimate for long-term portfolio performance.   It's worth asking if there are any obvious future trends that might imply an even worse worst-case.   I think this is one.

The best-case outcome of the demographic bubble is probably that people start retiring much later in life, and social security gets indexed to lifespan.   I'm not sure how well that's going to fly with the boomers, but I think we either take that course or we sink the economy.

 

[wabmester]

So people really make money writing books like these, hmm?

There's a lot of money to be made telling people how to get rich, whether the advice is good or not.

 

[Nords]

Two words, th.

So people really make money writing books like these, hmm?

Suze Orman.

A few more words-- man, that's an eerily carnivorous portrait-- http://www.suzeorman.com/home.asp .

 

[Whakamole]

So people really make money writing books like these, hmm?

I'd love to be a financial columnist. You write a few columns and keep on reprinting them with minor changes.

 

[cute fuzzy bunny]

Re: Two words, th.

Suze Orman.

A few more words-- man, that's an eerily carnivorous portrait-- http://www.suzeorman.com/home.asp .

Aye me bucko...if she's carnivorous then she can eat me.