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Population and the market.

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April 14, 2008 – Comments (5)

I'm sick and going to lie down shortly here, but I just saw a post titled "1 in 5 communities vulnerable to population loss."  It is a Canadian story, but what interested me about the story isn't where, but more the effects of population on the markets.

We have recently learned that some "truths" are not truths, such as "real estate always goes up," or "real estate is always a good investment."

There is another "truth" that I've left hints around, or statements to the effect, "let's talk about this in 10 years" kind of thing because I don't believe it to be a truth and I have figured it is senseless to try and put the point across in a world where going against common "truths" often leaves you discredited. 

The "truth" that I see frequently cited that I don't think will stand the test of time is that "the stock market always goes up" and it out performs all other investments. Its defenders cite hundreds of years of data.  I think this has been a truth because of the continuous exponential growth in population over the past 500 years, but now population growth is showing enormous stress.

I don't think economic models take a lot of consideration for population, and there are few examples where population has actually declined.  I believe Japan is an example where population has declined, and they are also one of the few examples of an economy that experienced deflation after a financial crisis is the 90s.  The Latin American countries with their enormous population growth experience enormous inflation with their financial crisis in the 80s.

The article points that economic conditions seem to be a determinant in whether there will be population growth in a region, no jobs and people tend to leave.

So, there are two population themes here, one about world population and the other about how population moves due to the economy.  I think the increases in world population have been an under recognized factor in the stock market out performing all other asset classes, and the stress on world population growth will start to change perceptions on the stock market long term.  I may still be early with this assessment, but the current food riots around the world make me think the projections of 10 billion people on this planet are questionable.

There are arguments that raising the standard of living for the mass population will be where growth comes from, but I tend to think that puts further stresses on population because of limited resources like water.  Raising standards of living dramatically increases water use and already many countries have serious water access problems.  I can't see standards of living going up as much as people expect simply because of water. 

If you didn't read my last post, give it a look... 

5 Comments – Post Your Own

#1) On April 14, 2008 at 2:20 PM, dwot (75.87) wrote:

 This one shares my sentiments...

He did it his way -- Greenspan

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#2) On April 14, 2008 at 2:44 PM, mandrake66 (94.86) wrote:

Immigration has been one of the touchstone issues in the U.S. for years, but a prolonged economic turndown coupled with the fall of the dollar will probably remove this issue from prominence. I read recently that intercepts of illegal aliens along the border with Mexico were way down recently.

There is much to be said about immigration pro and con, but I suspect a dropoff in immigration for purely economic reasons would mostly be negative for the U.S. It would discourage the newcomers we need the most.

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#3) On April 14, 2008 at 3:03 PM, FourthAxis (< 20) wrote:

You make some great points and I probably agree with the thesis, but..."now population growth is showing enormous stress"  I'm not sure I'm on board with that part yet. 

I believe we are still deeply entrenched in an exponential expansion...and most people don't take that into account (the exponential part).  

I use population to justify energy prices.  People say "well the world has always been growing"  Yes, but 50 years ago you might gain X population over 5 years.  Now, it's probably 5X over 5 years.  

Just my $0.02.

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#4) On April 14, 2008 at 6:32 PM, warrl (< 20) wrote:

I use population to justify energy prices.  People say "well the world has always been growing"  Yes, but 50 years ago you might gain X population over 5 years.  Now, it's probably 5X over 5 years.

Basically, in the "third world", the real population explosion more or less began with the common use of DDT and more or less ended with the global rejection of that substance. Other modern technologies are holding the population growth rate above where it had been pre-DDT, but nothing like the explosion that occurred in the DDT era. Meantime, in most "third world" countries the birth rate is trending downward, as people become accustomed to most of their children living through childhood.

Of course, what you had in the third world with the beginning of the use of DDT was an effective baby boom - not that they were being born any faster than before, but that they were NOT DYING. And that created an aftershock when those babies started having babies of their own, and there may be a few more ripples.

In the industrialized world, most nations are maintaining their existing population only via immigration. The US is one of the more stable, as first-generation immigrants and their children are reproducing at a sufficiently rapid pace to maintain the population even if immigration were to cease... of course then in a generation there's be no first-generation immigrants, and in another there'd be no children of first-generation immigrants. The portion of the population that has no very-recent immigrant ancestry is not sustaining itself.  Almost every country in western Europe would see the start of a population decline almost immediately if they cut off immigration. Japan has almost no immigration, the workforce is declining in absolute numbers, the population may be declining in absolute numbers.

As the developing world is becoming more developed and thus seeing its own birth rate fall, where do those immigrants come from?

Even the UN says that by 2050-2070 there is an excellent chance that the world human population will be in decline - assuming no global-scale famines, epidemics, wars, or economic collapses.

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#5) On April 14, 2008 at 6:59 PM, dwot (75.87) wrote:

I think it will start to decline sooner...  More calls for aid, but I think those calls will be met less and less.

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