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Demographics Thread : People, the Key to the Future

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(Some Intriguing thoughts / from GaveKal Research):

 

==Demography & Savings==

Q1: Who, in the Western World, has the worst savings rate? the US.

 

Q2: Who has the highest savings’ rate? Japan, Italy and Germany…

 

Q3: Who has the best demographic trends? the US.

 

Q4: Who has the worst demographic trends? Japan, Italy, Germany…

 

Putting it all together, we then pondered whether the fact that the highest savers in the world also have the worst demographics is a pure co-incidence?

 

We concluded that it wasn’t, for the following reasons:

 

Kids... cost money. So if nothing else, we should expect people that do not have kids to save more than people who do.

 

Secondly, at different ages, people offer very different consumption patterns. Young people (and societies) tend to consume a lot of goods (TVs, cars, ovens…). Meanwhile older people tend to consume services (opera tickets, cruises, hip replacements…). Now in countries such as Japan, Germany, etc… the “expensive services” (namely healthcare) are delivered by a government monopoly. So what can old people do with their money except save it? Your average septuagenarian is not buying a flat screen or an ipod…

 

Thirdly, and staying with the above idea, in most Western economies the social benefits (pensions, healthcare…) on which old people rely are typically dependent upon a growing population. Today’s young pay for today’s old in an intragenerational show of solidarity. But what happens when the young people start

to disappear? Who then pays for the old people? This is not a moot point: in Japan, Germany and Italy, the populations have started to shrink. So one might think that people in these countries are right to save; for if they plan to rely on the payments’ from young people to see them through their old age, they will be

mightily disappointed.

 

In other words, given

a) how most of our welfare states have been organized and

B) the rapidly deteriorating demographic situation, people

in the countries with ageing and shrinking populations need to save if they want to ensure a decent standard of living that the state will simply not provide.

 

Finally, and just as importantly, having kids has historically always been a guarantee for one’s old age.

Indeed, even though Victor Hugo once said: “a father can feed eight kids, but eight kids cannot feed one father”, people have often had kids to ensure that when they grow old, they will be taken care of (this, at least, has been Charles’ strategy and, so far, it seems to be working…). In other words, when you have kids, you don’t need to save as much since you have a “moral claim” on a small part of your children’s future earnings…

 

= =

 

(Methinks that is very dangerous thinking.

What if the children do not honor that "moral claim"??)

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(i have renamed this, "the Demographics thread")

 

Demographics are going to be a huge issue for our Globe-

too many people want to retire, and leave the labor force in the next 10-15 years.

Who is going to keep the economy growing, as these people stop working.

 

As someone who likes identifying new trends early,

Don Coxe is struggling to bring this theme into his commentary:

LISTEN:

http://events.startcast.com/events/199/B0003/#

 

Some of his points:

+ We've never had to deal with a cyclical peak and slowdown when demographics were an issue,

 

+ the current cyclical rollover may be the first where we do

 

+ Japan is already in its demographics crisis, so we can learn lessons from them

 

+ The declining number of "quality workers" may mean there is a CAP ON GROWTH,

.. and it will be tougher and tougher to get to low levels of unemployment without inflation

 

- This could mean less future growth, and less demand for commodities

 

+ Growth in emerging markets, where there has been a higher rate of population growth

.. is the best hope for the world. If we see that, commodities demand will hold up

 

+ Gold is still the place to be, because of:

: Central banks may push for growth, by continuing to pump money into the system

: There is too much low quality corporate debt, suggesting a potential financial crisis

.. if the economy slows down

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US demographics has less to do with kids and more to do with immigration.

 

I have lived in Australia and Canada, and am used to walking around and seeing people of all races. I visited Japan, and ALMOST EVERYONE was Japanese. It is like they have no immigration at all. Japan could easily open itself up to immigration from other asian countries for low-cost workers, but they choose not to.

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The Japanese believe in preserving their racial and cultural purity.

 

They do not even readily accept as Japanese, those of Korean descent, who were born in their country and speak only Japanese, and no Korean!

 

They Chinese also tend to believe in their own innate superiorty, but they tend to be more flexible and pragmatic than the Japanese, putting their faith in familes, rather than in their own entire race. I suppose you could say that the Japanese see themselves as a single family.

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### from that GHPC link, this will get some Property Bulls to lose sleep ###

 

dog2 Jan 9 2006, 09:54 PM Post #6

 

I have done some rough proportioning from my book and I get the following:

 

Number of 38 year olds = 950,000

Number of 26 year olds = 750,000

Number of 2 year olds = 650,000

 

These numbers are very crude estimates but I would say they represent a dire warning for anyone looking at property as a long term investment.

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The Japanese believe in preserving their racial and cultural purity.

 

They do not even readily accept as Japanese, those of Korean descent, who were born in their country and speak only Japanese, and no Korean!

Is this really the case? Do even a majority of Japanese people think that?

 

There are probably quite a few British people who think I am not British, even though my family's been in London for 4 generations and only speak English. I have met a few of these BNP nutters on HPC.co.uk. But I wouldn't say that "the British believe....".

 

frug.

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in a demographly-challenged world,

a country being open and appealing to outsiders, especially young immigrants,

will be an advantage

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the other side of the demographics problem - it ruins property-in-the-pension-plan...

 

Drop in housing demand predicted

 

Citywire: Equity release faces demographic challenge

 

Tom McPhail, head of pensions research, at Bristol-based adviser Hargreaves Lansdown is saying that an expected drop in the population over the next couple of decades would reduce housing demand. Meanwhile, he says, older people will be trying to trade down or release equity in lieu of a pension.

. .

"Tom McPhail, head of pensions research, said an expected drop in the population would mean there would be fewer family age adults around to buy houses. At the same time, there will be more older people trying to release value from their houses."

 

@: http://www.citywire.co.uk/News/NewsArticle...&NewsPage=1

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If so, the helpful winds at the back of the U.S. equity markets from 1983-1999 could turn into headwinds as household equity participation essentially flatlines (or worse) in the years to come. No doubt these statistics were on the minds of Wall Streeters when they pushed for privatization of Social Security in recent years to allow more Americans to play the markets with their SS funds. Without new players coming into the casino, the U.S. equity markets will have to make do with the players already in the market.

 

Another potential headwind is the fact that, while Americans over the age of 35 have continued to play the markets at more or less equivalent levels since 1999, those under 35 have reduced exposure. For example, 41% of these younger citizens had stock market exposure in 1999 while only 36% had exposure in 2005, for a 12% decline in participation over seven years.

 

Is this reluctance on the part of younger Americans due to a hangover from the 50% SPX decline in 2000-2002 or are these younger folks simply unable, from a financial perspective, to generate enough excess savings to invest a stake in the markets? Again, hard to say.

 

Yet another potential headwind in the years to come is the fact that the U.S. population, like so many developed nations, is aging rapidly. Historically speaking, the older you get, the less exposure you want to have to volatile, non-income-producing asset classes. The rationale for this is obvious: once retired, you need to count on investment income since you don’t have wages to depend on. In addition, a severe, even brief, market swoon, could take years to recover from, as we have seen from 2000-2007. The percentage of the U.S. over-65 population is expected to grow 67% over the next 25 years (from 12% in 2000 to 20% in 2030), while the percentage of the 20-64 population is expected to shrink by 9% over the same period (from 59% in 2000 to 54% in 2007.)

 

So when you consider that the growth rate of household equity participation is flat, younger Americans are actually reducing exposure, and demographics will be increasingly unkind in the decades to come, it’s easy to see how the U.S. equity markets could suffer as a consequence.

 

...more: http://wallstreetexaminer.com/blogs/wheeler/?p=178

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The Boomers Break the Deal

 

My grandfather's generation made a deal with my children's generation. It goes like this. If you will pay into Social Security and pensions so we can retire now, we agree to die on time, or at least in a predictable manner. The Boomer generation is going to break the deal. We are going to live longer, and maybe a lot longer. And that is going to cause problems in pension plans and government retirement programs all over the world.

 

Medicine as practiced today is still of the hammer and nails approach of the past 100 years. Our tools are better today, but the approach is the same. We wait for something to get bad and then we try and fix it. We get regular check-ups to try and diagnose any problems, and our ability to diagnose is getting better, but we still miss a lot. We work at doing what we can to prevent sickness, but our tools are not as good as we would like - basically, diet and exercise and a few medicines that try to prevent disease.

 

That is getting ready to change. Image scanners are becoming ever more fine-grained. Just a few years ago it was 32 lines per inch. Then it went to 64, 128, and now 256. 512 is only a few years away. Recognize that pattern? It is going the same way as chips and storage media. Within 5 years we will see a new generation of scanners that will make today's obsolete. Within 10-12 years we will be doing scans that will allow for much more detail in full three-dimensional color. They will be seeing the early formation of plaque and tumors and have the therapies to deal with them before they become a matter of life and death.

 

They are building chips which can diagnose all manner of disease by simply putting a drop of blood on the chip. Today, the chips can only diagnose a few diseases, but within 15-20 years it will be a thousand or more. Chips will be cheap and you will be able to get yourself checked often. Hopefully they will allow them to be hooked into your home computer and notify your health care provider if there is an issue. It will be a hypochondriac's heaven.

 

There are almost a dozen new technologies for dealing with Alzheimer's, most of which are already in human trials. Sometime in the next decade, Alzheimer's and dementia may be a thing of the past, assuming you take charge.

 

New genetic therapies are cropping up on almost a daily basis. Mice have 99% of the human genome, so we experiment on them a lot. There are mice that cannot get fat, no matter how much they eat. Mice that do not lose muscle mass. Couch potatoes of the world, unite! Mice that live 30% longer with the addition of just one hormone, the same hormone that is in our bodies. They are growing new liver cells from adult stem cells. The list goes on and on.

 

Of course, these are not yet in human trials, and skeptics suggest it will be a long time before they do go into human trials. I am not so sure. They are using adult stem cells in Brazil on patients with a certain type of very nasty disease caused by a bug bite, which creates problems in the heart that show up later in life. It is 100% fatal once it starts. For some reason, Brazilian doctors decided to inject adult stem cells into their patients. Taking adult stem cells seems to slow or halt the effect on the heart. They don't know why it works, but the point is they are doing it. Ad hoc human clinical trials. What will be the next thing tried? And where?

 

We may not see a lot of the human trials in the US with some of the more intriguing therapies, but it is my bet that we will see them elsewhere. Living 30% longer? No fat? No muscle loss? Someone, somewhere, is going to start the testing. I am not arguing the pros and cons of making humans guinea pigs (and I am not volunteering), just noting that I think it will happen.

 

In short, we are going to start diagnosing and fixing things before they go wrong. Let's say for the sake of argument that by the end of the next decade it is likely that the average person will live 5 years longer and by 2025 will be living 10 years longer, numbers that Dr. Michael Roizen (YOU: The Owner's Manual) says are reasonable guesses. You can make a real case for those numbers. Some would say they are conservative. We are not talking immortality. Just that the diseases that kill people today will be dealt with. More people will live long enough to die of simple old age.

 

Living longer is a very good thing, so why should I worry about that? Because I see the potential for black swans. Today, if you make it to 60, the odds are that you will live at least another 20 years and the last surviving spouse will live for 30 years. What if that goes to 25 and 40 years?

 

My friend Ed Easterling at Crestmont Research did some very interesting analysis a few months ago. You have saved and invested, and now you want to retire. You decide to take out 5% of your total portfolio to live each year and increase the amount for inflation, so that you can maintain your lifestyle (a number which a surprising number of investment advisors would say is ok). Let's say you are an aggressive older couple and decide to stay in the stock market because that is where you are told that you can get the best returns over time. And you know that you have the probability of living 30 years. On average you are going to get 7-8% or more, right?

 

Ed calculates what you would get for 78 different 30-year periods since 1900. Let's say you start with a million dollars. On average, this has been a good bet. You could maintain your lifestyle and end up with $3.6 million. You've been pretty conservative, right?

 

Wrong. Because the returns you get over the next 30 years are highly dependent on the P/E ratios at the beginning of those 30 years. Let's break up those 30-year periods into four quartiles of beginning valuation. If you start in a period when P/E ratios are in the highest quartile, you find that over 50% of the time you end up penniless, on average within 22 years. Here's that data from Ed:

 

XXX

 

Where are we on valuations today? You go to S&P's web site and you find that core P/E's are 17.4, at the upper end of the second highest quartile. Notice that even when starting with the lowest-quartile valuations that 5% of the time you ran out of money within 23 years. Want to take a lifestyle bet that you have a 1 in 20 chance of losing? As Ed points out, it will not be fun to have to go to work as a WalMart greeter at 80.

 

Now, let's throw my assertion that one of the surviving spouses is going to live on average 10 years longer. The failure ratio, meaning that you run out of money, gets a lot higher. And it gets worse if you use a traditional mix of stocks and bonds, because bonds lower the overall return.

 

The point is that retirement planning is going to get a lot more difficult. And we are going to have a generation who will be in their '70s when they realize the good news is that they will live longer but the bad news is that they can't afford it. And the bad news is that they are going to want the government to step in and help. And by that I mean they are going to need more tax dollars.

 

Let's think of some of the implications. First, we already know that the large majority of US citizens have not saved enough for retirement. But for those that think they have, they may be budgeting for a future that is going to be a lot longer than they plan.

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Is this really the case? Do even a majority of Japanese people think that?

 

frug.

 

I can vouch for that, as a "Japanophile", having spent quite a bit of time working there in 2005. While I was there, a big debate was raging about demographics and opening up to immigration...pensions crisis etc. etc.. However, it's hard to see how their culture, with its attention to detail, rituals and ceremonies - just "knowing" the right way to do things, could survive mass immigration as seen in the UK..

 

One of my absolutely best friends is Japanese, very tolerant, open, sensitive and liberal, fantastic guy, but even HE once called me (a Brit) "gaijin" (foreigner), while we were walking down Oxford Street in London! Say no more...

 

As for Italy, they do have a tiny ITALIAN birth rate but this has been bolstered by substantial recent immigration so the population is rising steadily - I watched this with my own eyes when I was living in Milan between 1993 and 2001. Points of comparison with Japan are not so many, I think.

 

Also, family money still rules the roost in Italy but the population is much more credit-orieneted than before. Nothing like the US/UK, of course (but then what could be). I'm not so sure people save like they used to...

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The wealth of aging nations

 

Most discussion of aging focuses on the rapidly escalating cost of pensions and health care, not the potentially far more damaging effects on wealth, savings, and economic well-being. A McKinsey Global Institute (MGI) study of Germany, Italy, Japan, the United Kingdom, and the United States shows that as more and more people retire, lower savings rates will hold back growth in household financial wealth. By 2024, it will be 36 percent—$31 trillion—less than it would have been if historical rates of expansion had persisted. This reality will depress investment, growth, and living standards in the largest, wealthiest economies and threaten the future development of poor ones.

 

 

MGI argues that the policy changes fashionable today—promoting immigration, raising the retirement age, and encouraging households to have more children—won't mitigate the crisis. Yet a sustained effort to allocate capital more efficiently, boost savings rates, and close government deficits could. "The demographic deficit: How aging will reduce global wealth" (Web exclusive, March 2005) explains the solutions as well as the problems.

 

((from McKinsey Quarterly Report April 2007)

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this posting was originally made on an HPC thread: post#51:

http://www.housepricecrash.co.uk/forum/ind...47404&st=45

 

QUOTE

"Don't expect tea and symathy if your thick friends or neighbours invested in property whilst you did not. Why? Because they were smart and you were dumb."

 

It may interest you to know that some of us view houses as HOMES not INVESTMENTS. That makes us nice reasonable human beings who value most things above money and aren't interested in f*cking over our fellow man for a percentage. It doesn't make us dumb.

 

There's another way to look at it.

Anyone who bought in the last 2-3 years was an irresponsible and reckless gambler,

who was bailed out by irresponsible and reckless increases in the money supply.

 

So maybe it wasnt the "smart" that won, it was the "lucky" and the "reckless".

But those who stay in the game now, look even more reckless, bordering on stupid

 

As to houses just being just houses:

You cannot look at it that way anymore.

Thanks to the big Ponsi scheme that has grown up around UK property, they have become important objects of speculation. If you buy now, you are paying a huge speculative premium, which you may not get back. If you are willing to risk that, for the sake of "owning a home", you'd better realise what risk your are taking, and how much your "emotional" satisfaction may costn in the future (DO you want to be a "debt slave"?). To fail to make those calculations would be reckless and rather stupid.

 

Some want the market to accomodate their own life plans. It doesnt do that. At the moment it is responding to temporary demand for a "pension asset" amongst the boomers are approaching retirement, and think they are buying a secure asset for their future. They are making a huge mistake. Demographics show, that this type of demand will peak anytime from now until 2010. After that peak, the number of demographically driven buyers will decline, and continue declining for many years. Believe me, that will have a HUGE impact upon UK property prices.

 

The 20-somethings and 30-somethings are very lucky, and few realise it. Itr will be cheap to rent for many, many years. They should find the property of their dreams, rent it, and sit back and enjoy cash savings of renting. The time to buy is years away, after further rises in rates, a sharp price fall, and sometime out there (2010-13?) when it will again be cheaper buy then rent.

 

REALITY is a bitch sometimes. But it is important to recognise what it is. Else the bitch will bite you.

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a few years out of date, but interesting nevertheless

 

ca-1.gif

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New genetic therapies are cropping up on almost a daily basis. Mice have 99% of the human genome, so we experiment on them a lot. There are mice that cannot get fat, no matter how much they eat. Mice that do not lose muscle mass. Couch potatoes of the world, unite! Mice that live 30% longer with the addition of just one hormone, the same hormone that is in our bodies. They are growing new liver cells from adult stem cells. The list goes on and on.

 

Have you seen this?

 

http://www.ted.com/index.php/talks/view/id/39

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Interesting article in today's Telegraph suggesting China may have big problems in a few years because of the demographic ticking time bomb.

 

---------------

Japan leads world in demographic decline

By Ambrose Evans-Pritchard in Tokyo

Last Updated: 12:12am BST 01/06/2007

 

Japan is slowly shrinking. Last year it became the first nation in modern history to tip over into outright demographic contraction, pioneering a path that will soon be followed by Italy, Germany, Spain, and most of Eastern Europe, with China close behind.

 

The population peaked at 128m in 2005 and is expected to fall below 100m by the middle of the century, when 36pc will be 65 or older. The dynamics of decline are already contaminating every aspect of the economy. The trend rate of growth has dropped to 1.5pc. The blistering 10pc pace of the early 1970s seems like a distant dream.

 

Wages have fallen for the last five months in a row, vastly complicating efforts to stave off deflation. Officials at the Bank of Japan blame the subtle effects of ageing. A bulge of baby-boomers is retiring at the top of the pay scale, to be replaced by younger workers - many on part-time contracts, at half the rate. Salaries have fallen 8pc over the past decade.

 

It will be much worse for China, where the workforce peaks in just eight years before plunging into the fastest downward spiral ever seen in peacetime. The one-child policy of 1980s and 1990s has already baked a population crunch into the pie, whatever is done now.

 

Dr Kwan Chi Hung, a fellow at the Nomura Institute and a top China expert, said the long-term prospects for China were "horrible".

 

advertisement"When Japan hit this problem it was already an advanced economy. China will still be poor. It only has 10 more years of strong economic growth and that is not enough," he said.

 

Mr Kwan estimates that China's development is 40 years behind Japan on most indicators, and its return on investment (incremental capital output ratio) is a dismal 4.4, far worse than those of Japan (3.2), South Korea (3.2), and Taiwan (2.7) during their growth spurts. "China is extremely inefficient because of the large state-owned sector," he said.

 

When the crunch comes around 2015, China's per capita income will be a sixth of Japanese and western levels. The society will turn grey before it escapes poverty.

 

This is small comfort for Japan, where a sense of foreboding about the demographic crisis colours all political discourse.

 

Prof Mariko Bando, the former chief of Japan's gender equality bureau, said the fertility rate had crashed to 1.26 from a stable level near 2 in the 1980s, far below the minimum reproduction rate. She said the plunge has been more extreme than in Europe (though Latvia and Estonia are comparable) because Japan had been so slow to embrace feminism.

 

"They never listened to the voice of women before, but the shock is now forcing Japan to respond," she said.

 

Women are silently protesting through refusal to have children under the existing social contract. "The ancien regime makes it very hard to have both a career and a family so women are putting off marriage. They are no longer willing to accept a double shift where they come home from work and have to do all the household chores," she said. Over 17pc in their 40s remain single.

 

"It's not so bad in the civil service, but business remains the last stand culturally for the Japanese man," she said.

 

The country faces a sort of fertility paralysis as men cling to the Confucian tradition that wives must serve their husbands, while women rebel. Parts of the ruling LDP (all male) party is having great difficulty coming to terms with this.

 

"Women have their proper place: they should be womanly," said LDP policy chairman Syoichi Nakagawa, right-hand man to premier Shinzo Abe.

 

"They have their own abilities and these should be fully exercised, for example in flower arranging, sewing, or cooking. It's not a matter of good or bad, but we need to accept reality that men and women are genetically different, " he said over breakfast in Tokyo.

 

Other parts of the Japanese government take a starkly different view, believing that the only way to prevent economic atrophy is to unlock female talent.

 

The cabinet office has pushed though affirmative action quotas designed to raise the number of women in public sector management jobs from 10pc to 30pc by 2020.

 

Maternity (or paternity) pay has been lifted from 25pc to 50pc of income, and leave has been extended from one year to 18 months. The waiting list for nurseries is being slashed.

 

The number of immigrants is creeping up too as the authorities quietly waive restrictions. Some 300,000 Brazilians of mixed Japanese ancestry have come, mostly to work in the Toyota factories of Nagoya. Phillipino migrants now tend the rice paddies and orchards, supposedly as student "trainees".

 

But they are not enough. "We need three million," said Fukunari Kimura, a professor at Keio University.

 

The once vast trade surplus has shrunk to 1.9pc of GDP as the economy matures. It will soon turn to deficit. For the next 30 years, Japan will slowly draw down its $1,800bn (£909bn) of net foreign assets, mankind's greatest stash of offshore wealth.

 

Decline may be unavoidable, but at least it will be graceful.

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this posting was originally made on an HPC thread: post#51:

http://www.housepricecrash.co.uk/forum/ind...47404&st=45

 

Demographics show, that this type of demand will peak anytime from now until 2010. After that peak, the number of demographically driven buyers will decline, and continue declining for many years. Believe me, that will have a HUGE impact upon UK property prices.

 

I have to agree with DB, this is the main reason why I refuse to buy another house in the UK right now!

 

The demographic implications for the UK housing market get even more interesting when you look down to the macro level. Find an area you know on here:

 

http://neighbourhood.statistics.gov.uk/dis...DqQLvpAe?bhcp=1

 

Looking at the occupancy and demographic makeup of my own neighborhood, there is a very obvious disproportionate (perhaps 40%) number of single occupants in their 70s and 80s (now mid 70s/80s) living in an area mostly comprised of 3 & 4 bedroom houses. It's not a retirement area, just a place with an aging population. It's very unlikely that many of these folk will still be there in 10 years time.

 

This will effectively become masive 'new' supply of mid range property, because people of this age will mostly move on to places outside the mainstream housing market. This is just a snapshot, but due to massive out migration from London just after WW2 this is probably quite typical for many of the satallite commuter towns.

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Looking at the occupancy and demographic makeup of my own neighborhood, there is a very obvious disproportionate (perhaps 40%) number of single occupants in their 70s and 80s (now mid 70s/80s) living in an area mostly comprised of 3 & 4 bedroom houses. It's not a retirement area, just a place with an aging population. It's very unlikely that many of these folk will still be there in 10 years time.

 

This will effectively become masive 'new' supply of mid range property, because people of this age will mostly move on to places outside the mainstream housing market. This is just a snapshot, but due to massive out migration from London just after WW2 this is probably quite typical for many of the satallite commuter towns.

 

 

Interesting.

We dont here much about the "over-housed", but there are many of them who bought cheaply years ago for a family,

and are now living in very valuable homes where they have more space than they need

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Interesting.

We dont here much about the "over-housed", but there are many of them who bought cheaply years ago for a family,

and are now living in very valuable homes where they have more space than they need

 

IMO 'overhousing' is a key UK housing market fundamental but clearly not one that can be sustained indefinitely.

 

There is yet another little known factor that will very soon come into play. UK local government budgets are already coming under significant pressure from the spiraling social care costs of a burgeoning elderly population. In the near future councils will have two choices; raise council tax, or increase means testing for social care. Both will place very siginficant finacial pressure on overhoused pensioners, many of whom will be forced to downsize.

 

Incidentally there is a very simple but reliable indicator for an area that has significant underhousing:

 

Schools have been shut down; this normally only happens due to lack of children

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Interesting article in today's Telegraph suggesting China may have big problems in a few years because of the demographic ticking time bomb.

 

---------------

Japan leads world in demographic decline

By Ambrose Evans-Pritchard in Tokyo

Last Updated: 12:12am BST 01/06/2007

 

Japan is slowly shrinking. Last year it became the first nation in modern history to tip over into outright demographic contraction, pioneering a path that will soon be followed by Italy, Germany, Spain, and most of Eastern Europe, with China close behind.

 

The population peaked at 128m in 2005 and is expected to fall below 100m by the middle of the century, when 36pc will be 65 or older. The dynamics of decline are already contaminating every aspect of the economy. The trend rate of growth has dropped to 1.5pc. The blistering 10pc pace of the early 1970s seems like a distant dream.

 

Wages have fallen for the last five months in a row, vastly complicating efforts to stave off deflation. Officials at the Bank of Japan blame the subtle effects of ageing. A bulge of baby-boomers is retiring at the top of the pay scale, to be replaced by younger workers - many on part-time contracts, at half the rate. Salaries have fallen 8pc over the past decade.

 

It will be much worse for China, where the workforce peaks in just eight years before plunging into the fastest downward spiral ever seen in peacetime. The one-child policy of 1980s and 1990s has already baked a population crunch into the pie, whatever is done now.

 

Dr Kwan Chi Hung, a fellow at the Nomura Institute and a top China expert, said the long-term prospects for China were "horrible".

 

advertisement"When Japan hit this problem it was already an advanced economy. China will still be poor. It only has 10 more years of strong economic growth and that is not enough," he said.

 

Mr Kwan estimates that China's development is 40 years behind Japan on most indicators, and its return on investment (incremental capital output ratio) is a dismal 4.4, far worse than those of Japan (3.2), South Korea (3.2), and Taiwan (2.7) during their growth spurts. "China is extremely inefficient because of the large state-owned sector," he said.

 

When the crunch comes around 2015, China's per capita income will be a sixth of Japanese and western levels. The society will turn grey before it escapes poverty.

 

This is small comfort for Japan, where a sense of foreboding about the demographic crisis colours all political discourse.

 

Prof Mariko Bando, the former chief of Japan's gender equality bureau, said the fertility rate had crashed to 1.26 from a stable level near 2 in the 1980s, far below the minimum reproduction rate. She said the plunge has been more extreme than in Europe (though Latvia and Estonia are comparable) because Japan had been so slow to embrace feminism.

 

"They never listened to the voice of women before, but the shock is now forcing Japan to respond," she said.

 

Women are silently protesting through refusal to have children under the existing social contract. "The ancien regime makes it very hard to have both a career and a family so women are putting off marriage. They are no longer willing to accept a double shift where they come home from work and have to do all the household chores," she said. Over 17pc in their 40s remain single.

 

"It's not so bad in the civil service, but business remains the last stand culturally for the Japanese man," she said.

 

The country faces a sort of fertility paralysis as men cling to the Confucian tradition that wives must serve their husbands, while women rebel. Parts of the ruling LDP (all male) party is having great difficulty coming to terms with this.

 

"Women have their proper place: they should be womanly," said LDP policy chairman Syoichi Nakagawa, right-hand man to premier Shinzo Abe.

 

"They have their own abilities and these should be fully exercised, for example in flower arranging, sewing, or cooking. It's not a matter of good or bad, but we need to accept reality that men and women are genetically different, " he said over breakfast in Tokyo.

 

Other parts of the Japanese government take a starkly different view, believing that the only way to prevent economic atrophy is to unlock female talent.

 

The cabinet office has pushed though affirmative action quotas designed to raise the number of women in public sector management jobs from 10pc to 30pc by 2020.

 

Maternity (or paternity) pay has been lifted from 25pc to 50pc of income, and leave has been extended from one year to 18 months. The waiting list for nurseries is being slashed.

 

The number of immigrants is creeping up too as the authorities quietly waive restrictions. Some 300,000 Brazilians of mixed Japanese ancestry have come, mostly to work in the Toyota factories of Nagoya. Phillipino migrants now tend the rice paddies and orchards, supposedly as student "trainees".

 

But they are not enough. "We need three million," said Fukunari Kimura, a professor at Keio University.

 

The once vast trade surplus has shrunk to 1.9pc of GDP as the economy matures. It will soon turn to deficit. For the next 30 years, Japan will slowly draw down its $1,800bn (£909bn) of net foreign assets, mankind's greatest stash of offshore wealth.

 

Decline may be unavoidable, but at least it will be graceful.

 

Here are the latest UN world population forecasts:

 

http://www.un.org/esa/population/publicati...006/wpp2006.htm

 

The interesting thing for me is that Asia (mostly, Japan is different) and Latin America are both now into the economically benign phase of th third demographic transition. But the time window is relatively short. By 2040 they are estimated to start the process of an ageing population.

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The 2008-and-after DEMOGRAPHIC/CREDIT MELTDOWN from interview with:

"Demons of Our Own Design" author

 

Here's an interesting argument about a possible meltdown from a FS interview:

http://www.netcastdaily.com/broadcast/fsn2007-0721-2.asx

 

demon.jpg

(go to 56 minutes into the broadcast):

 

"If the market is at the same level 15-20 years later... that's like a meltdown."

And it may happen in Property

 

Jim Puplava asked Richard Bookstabber if we coudl see a repeat of 1929 or 1987.

RB said a repeat was unlikely. Hedge Funds are set up to play the financial markets

aggressively. But most individuals have a different portfolio (with a property emphasis.)

 

But a different and equally dangerous scenario may play out:

 

+ Failure in the mortgage markets, with out in the credit markets

+ Daggers are pointing to the financial institutions, and those who use them

 

The CRISIS is most likely after 2008-2010, when the baby-boomers reach retirement:

 

+ Too many people are "putting too much stock" in their properties, as a principal pension-type asset

+ If housing prices start to drop, so they can no longer be used as a nest-egg,

+ Then, the crisis will spread to the equity markets, as people sell those assets too

+ Could be a slowburn, because the baby-boomers gradually liquidate their assets, to fund their retirement

+ But fewer buyers are about, because of the demographic situation (the post 1960's "baby bust").

+ So the properties get sold at lower-than-expected prices, especially after considering inflation

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(from Chuck Coppes)

 

As I have mentioned elsewhere on my business Web site, Nikolai Kondratieff (1892-1938) demonstrated that Western capitalist societies experience long-term cycles of boom followed by bust. These grand supercycles generally run about sixty years and the present supercycle began in 1949. This period from 2007 to 2009 is a very critical period for economic and geopolitical tensions that are beginning to rise to the surface. Starting in January of 2008 the first cohort of baby-boomers will begin to retire and this will only expose the nearly $66 trillion in unfunded liabilities for eighty million aging Americans. In 2008 we will also have new elections and political leadership in the U.S. Someone once said that politicians and diapers need to be changed often – and for the same reason. It is unlikely, however, that either political party, the Fed, or anyone else will be able to reverse our nation’s path towards economic Armageddon. Contrarian investors need to watch their investments closely this year and hedge themselves in hard assets, tangibles, foreign currency and other defensive strategies.

 

@: http://www.chuckcoppes.com/general/my_forecast_for_2007.html

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(this was posted on GEI by Member100):

 

### From an interview with Prof. Piet Eichholtz ###

 

* Just now for Eichholz, the arrow (property cycle) is pointing down

 

* "I'm really concerned for housing markets wherethe demographics look bad", he says.

"Then prices can fall a long way."

 

* What has made the Herengracht index stand out: "it has always been prime property"

 

* The index corrects for rising consumer prices, but not wages

 

- The canalside index doubled in ist first 50 years, as imiigrants flocked to the booming hub of a rich trading empire

- Wars sent the index gyrating over the next century

- 150 Herengracht sold at 5,100 guilders in 1755 (to Abraham Mylius), and then:

- The price tag was the same over a century later when shopkeeper John Dreckmeijer bought it

- Same property was bought by dentist Erik Schotman for 310,000 guilders in 1993

 

* Long periods where prices go up or down- but no uptrend or downtrend over the centuries.

Real prices in the early 1970's were little changed from 1650. Since 1979 oil crisis, they have doubled

 

* A price fall of 30 - 40 percent is common, and cannot be ruled out for the US or Britain.

In fact, Eichholtz believes that prices could halve.

 

* "To have a long term bust, you need to have more than one bad thing".

Previous busts were triggered by events like:

 

- Wars,

- A major economic crisis,

- A major demographic crisis

 

Eichholtz sees that the US (and Europe?) are entering a 20-year demographic crisis

 

 

/see: #14: http://www.greenenergyinvestors.com/index.php?showtopic=699

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(Methinks that is very dangerous thinking.

What if the children do not honor that "moral claim"??)

 

Ahh well.....you make sure that the resources they stand to inherit from you are linked to how well they look after you in your old age....This is how it has worked throughout history..

 

Homus economicus don't you know... :(

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