Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: BubbaFred who wrote (53232)	9/12/2004 3:11:58 PM
From: Taikun	Respond to of 74559

BF: As you know, I respect John Mauldin, subscribe to his newsletter, like his books. Thank you for posting this, because it raises some important points. I read this in his newsletter you posted: "For most of history, the elderly--here defined as adults aged 60 and over--comprised only a tiny fraction of the population, never more than 5 percent in any country. Today in the developed countries, they comprise 20 percent." "It should be clear to everyone that such an outcome would be an utter economic disaster." This has become a popular alarmist theme among economists and central bankers alike (I am not sure they have the same objectives in mind) however this theme is a one-sided view. It is not that I disagree with his statement, however there are many ways of viewing this problem. The Economist has a publication 'World in Figures' (p.17) and there is a book by McMorrow and Roeger "Economic Consequences of Ageing Populations" referred to in Niall Ferguson's Cash Nexus (p.211) Using dependency ratios (defined as all dependents, children and retirees, children being under 15 retirees being over 64) and one comes to a different conclusion to the alarmists and the quote by Mauldin. Due to the larger populations of children in developed nations, the dependency ratios (the ratio of the working population 15-64 to those under 15 and over 64) produce different numbers from Mauldin. The dependency ratios for 1900 then 2000, and then the projection for 2050 follow: US: 0.62 0.52 0.66 Japan: 0.63 0.47 0.86 Germany: 0.61 0.47 0.69 France: 0.52 0.53 0.73 UK: 0.59 0.53 0.69 Italy: 0.68 0.48 0.78 In other words, including all dependents (ie children) in calculating the ratio shows that even at current levels the dependency ratio is not as high as in the past, and although the future ratio is set to rise, in the US the increase is less than 10%, and the UK, less than 15%, far less alarmist than is being made out, and less of a reason to increase retirement ages than Alan Greenspan and other politicians would have you think. (Proper funding and management of social security and small tax increases may do it) From an investment perspective, using this ratio, one also comes up with a nice list of countries that do not need to raise taxes to pay for the ratio in 2050: I quote the authors: "Britain, Canada, Australia, Ireland and New Zealand -are the countries with the least to worry about" Another metric, generational balance, seeks to explain a similar relationship between working and dependent generations: "A number of countries could achieve generational balance with relatively modest tax increases of under 5 percent: Australia, Belgium, Canada, Denmark, Portugal, and Britain" "Only Ireland and New Zealand would not have to raise taxes to achieve generational balance" "Ireland could cut its income taxes by about 5% to achieve generational balance" Actually this makes for a compelling investment thesis for Ireland. In fact, Bank of Ireland, Fyffes and others Irish stocks could be used to create a portfolio of 'high' yield (4%+/-) Irish stocks. (I did not look at New Zealand) thepost.ie I do agree with Mauldin that we have a problem, but disagree with it being presented in such an alarmist one-sided fashion. Moreover, as a financial analyst, I would expect Mauldin to be able to come up with investment opportunities within this theme.

To: BubbaFred who wrote (53232)	9/13/2004 3:36:23 PM
From: Taikun	Respond to of 74559

BF: I emailed John Mauldin. Here is the response. I can better understand his POV now, and I agree we're in trouble David Subject: maybe, maybe not David, We are discussing two different things. Dependency ratios are not the "alarmist" issue. If that were all there were to the equation, it would be daunting, but something we could work out with no need to be alarmed. The problem is the political promises of certain governments to take care of the elderly with pension and medical insurance far beyond the ability of the remaining working to actually afford. I would politely suggest you review the data. Using 50-60% of a nation's government budgets simply for pension, when those nations are already taxing at 50-60% is an economic disaster. Whether Keynesian, monetarist or Austrian, no theory allows for a nation to take 70% of GDP and prosper economically. And that is what you would be talking about in many European nations if all promises were met as currently written. Small plug, I have two chapters in Bull's Eye Investing which goes though this line of though in detail which might prove useful to those who are interested in further research. Feel free to post this as a response. John With warm regards, John Mauldin Millennium Wave Investments 1-800-829-7273 1000 North Ballpark, Suite 216 Arlington, Texas 76011 (W) 817-794-0669 (Fax) 817-459-3740 This message may contain information that is confidential or privileged and is intended only for the individual or entity named above and does not constitute an offer for or advice about any alternative investment product. Such advice can only be made when accompanied by a prospectus or similar offering document. Past performance is not indicative of future performance. There is risk of loss as well as opportunity for gain when investing. If the reader of the message is not the intended recipient or the employee or agent responsible to deliver it to that party, the use and reading of the message are strictly prohibited and you are instructed to delete and destroy the message, without copying it in any form, and to notify the sender by telephone at 800-829-7273 or email reply. All personal messages are views solely of sender. John Mauldin is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered with multiple states. MWA is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB). John Mauldin is a registered representative of Millennium Wave Securities, LLC, (MWS) member NASD,SIPC. Millennium Wave Investments is a dba of MWA LLC and MWS LLC.