America's Demographic Time Bomb

With the report this week that America's birthrate has fallen to a new multi decade low of 1.77 children per family, it is time to once again visit the issue of demographics.

They're just not making Americans anymore, at least not as fast as they used to. That is far below the replacement rate of 2.1 children per family.

This has long term dire implications for the economy.

You can never underestimate the importance of demographics in shaping investment trends, so I thought I'd pass on these two highly instructive maps.

The first shows a picture of the world drawn in terms of the population of children, while the second illustrates the globe in terms of its 100-year olds.

Notice that China and India dominate the children's map. Kids turn into consumers in 20 years, stay healthy for a long time, and power economic growth.

The US, Japan, and Europe shrink to a fraction of their actual size on the children's map, so economic growth is in a secular downtrend there.

There is more bad news for the developed world on the centenarian's map, which show these countries ballooning in size to grotesque, unnatural proportions.

This means higher social security and medical costs, plunging productivity, and falling GDP growth. If you wonder where our mediocre 2% annual growth rate came from, this is a big cause.

The bottom line is that you want to own equities and local currencies of emerging market countries, and avoid developed countries like the plague.

This is why we saw tenfold returns from some emerging markets (EEM) over the past ten years, and why there is an irresistible force pushing their currencies upward (CYB) over the long term.

Use any major meltdowns this year to increase your exposure to emerging markets (EEM), as I will.

Would You Rather Own Them?

Or Them?