Macro-Macro - The Bad, The Ugly and, Perhaps, The Good

I obviously focus on macro-economic trends and ideas, but let's digress just a tad and focus on super-macro or macro-macro stuff. It is out there and you can find it, but it perhaps does not get enough attention. There is plenty I can say here but I will focus on a couple of areas and follow with more later.

Demographics

Let's start with demographics, i.e. that how old are your people thingy. Now let me add that demographics means a bit more than just how many old people you have and how old they are, but from an economic perspective, that is the demographic of concern.

There are certain countries that have very poor demographics, like Japan with a pretty aged population, those with poor demographics like the US and much of the EU, with a population increasingly in retirement age in the next 20-30 years, and those not too bad like India. China has bad demographics from an age perspective and dismal demographics from a gender balance perspective due to its one child policy.

I read last week that in the U.S. stock prices can be expected to go down overall for the next 15 years or so because of demographics. Simply speaking, PE ratios tend to go down as demographics/populations age so stock prices will go down simply because the population is aging. Now I question this a bit as stock prices in US markets are increasingly tied to other economies more than the US economies (i.e. US company profits are less domestically based), so the US demographics should over time have even less impact. Nonetheless, the fact that older populations correlate to lower PE ratios is not a stat worth ignoring.


Demographics is Nothin'

While we cannot ignore demographics, if you are focusing long term, i.e. 10-30 years, there are more important things happening. A lot of folks are betting on emerging economies. Money this past decade has been going into China, India and other emerging economies to the point where some may not even be considered emerging any more. So what happens when a few billion people start being consumers? What happens when they start buying homes, TVs, cars, different food, fuel, electricity, plumbing, clean water, etc. We in the US have been greedy bastards hording an overwhelming relative percentage of the world's resources. When the rest of the world wakes up - especially countries with populations of a billion or more - and start actively trying to bring a better life-style to their citizens, then the resources that might supply such life-styles become strained.

Let's face it, the world is incapable from a resource perspective to give everyone on Earth the life-style of the average American. We simply cannot do it. So while emerging economies strive to get to what we have, they simply make it even more impossible. We cannot all be gluttons. So, my friends, as you rush off to invest in emerging markets or you praise the life style gains in China, India and the like, keep in mind their growth helps seal every one's fate. Us gluttons need to fall back in our life styles to allow enough global resources to support their growth.

Many think we are already at peak oil. Absent some breakthrough in renewable energy, it is going to get a lot worse before it gets better.

China has been buying up precious metal supplies and has the current market cornered, which is causing a bit of an international dispute.

These and similar issues will continue to be regular headlines going forward, so get used to it.

Agriculture

To me, however, the biggest issue for the next 20-50 years will be food. The global population is still growing and we are still actively finding ways to keep people alive and for longer. While this all sounds great if you are one who was saved by medical miracles or who is living longer due to basic advances, it is not really a good thing overall just yet. Unless we can feed all these people, having more is a big problem. And from what I have seen some of the environmental changes are making sustainability - from a food source perspective - quite questionable. There are dozens of factors here from bad farming techniques - overuse of fertilizers, herbicides, insecticides, and the like - weather patterns, and short term goals for corporate farms. Overall, we have some very dangerous dynamics developing in terms of feeding the world and these are already leading to massive riots in various countries where families are literally paying over 50% of their incomes to put food on the table. This will get much worse before it gets better.

The bright side is that those looking for a job in the US may have a bright future in agriculture should they be wise enough to consider it. My maternal grandparents were farmers and it seemed family farms were a thing of the past by the time I grew up. Now I think properly run family farms that farm wisely are perhaps one of the best future industries in the US. We have the resources and if we use them wisely we can do quite well feeding a lot of the world. Unfortunately, too few are thinking this way. It is, however, a thought I hope to plant with my kids.

Disclosures: None.