The Rule of Threes.

One of our long term views of the US economy is what we call "The Rule of 3".  The rule of 3 simply states the following.

In the United States regarding the long term growth rate for stocks:
3%  population growth {either via birth or immigration} Plus
3%  inflation rate


Helps to support long term corporate profit growth of between 6-7% and a dividend rate of approximately 3%.

I'm linking today a paper, for those who enjoy readubg dry economic abstracts, which seems to back up my population thesis.  The authors investigate the relationship between the aggregate stock dividend yield and the ratio of middle-aged (40-49) to young (20-29) populations in the U.S.  They conclude that demographic projections suggest a reasonably stable long run real U.S. stock market return over the next 40 years.

This is long term and terribly wonkish stuff but I'll throw it out there for those of you who have nothing else to do on a late March Saturday.

Source:  "Demographic Trends, the Dividend/Price Ratio and the Predictability of Long-Run Stock Market Returns",  by Carlo Favero and Arie Gozluklu  Link:  Demographic Trends.