Summer Client Investment Letter {Conclusion}
Today is the conclusion to our summer client investment letter. As a reminder we will have limited posting over the next couple of weeks.
Finally, a rule of thumb I learned years ago as a rookie is something I’ll call “The Rule of 3’s”: 3% inflation, 3% GDP and 3% population growth have historically lead to 5-7% corporate earnings growth. The US has historically had all three. Today I want to focus on the population part of the rule because it seems that our kids are going to bail us out. The chart below shows a phenomenon that is only recently been appreciated. Quietly while attention is focused on the retiring baby boom generation; there are now more people of the three succeeding generations than the last two. As it turns out we are starting to see demand side growth in the economy as the millennial generation comes of age. Evidence is starting to creep out that the kids are starting to leave home, get real jobs, get married and are looking for their own place to live. Eventually that will also translate into children. This is all being helped by a slow thaw in credit, higher affordability in housing and an improving labor market. In other words despite all you’ve heard to the contrary the kids will probably be all right. And if you want to have a look at your own mortality, Pew Research also expects there to be only 16 million “Baby Boomers” left by mid-century, down from a peak 79 million and virtually nobody left from those born between 1928 and 1946.
Finally, a rule of thumb I learned years ago as a rookie is something I’ll call “The Rule of 3’s”: 3% inflation, 3% GDP and 3% population growth have historically lead to 5-7% corporate earnings growth. The US has historically had all three. Today I want to focus on the population part of the rule because it seems that our kids are going to bail us out. The chart below shows a phenomenon that is only recently been appreciated. Quietly while attention is focused on the retiring baby boom generation; there are now more people of the three succeeding generations than the last two. As it turns out we are starting to see demand side growth in the economy as the millennial generation comes of age. Evidence is starting to creep out that the kids are starting to leave home, get real jobs, get married and are looking for their own place to live. Eventually that will also translate into children. This is all being helped by a slow thaw in credit, higher affordability in housing and an improving labor market. In other words despite all you’ve heard to the contrary the kids will probably be all right. And if you want to have a look at your own mortality, Pew Research also expects there to be only 16 million “Baby Boomers” left by mid-century, down from a peak 79 million and virtually nobody left from those born between 1928 and 1946.
There
are three important demographic trends at work here. 1). We are seeing a cyclical recovery in US
births as the number of US births is increasing for the 1st time in
seven years. 2). Almost all new moms are “Millennial”
moms. 3) Perhaps the most important
economic development is that parenthood is a catalyst for a new way of spending
as it triggers two needs, an increase in child-related expenditures {think
diapers and infant formula}. It is also
the catalyst for big-ticket purchases.
That is families will buy their first house and the sports car gets
traded in for the mini-van. All of
these should act as an economic floor going forward. Expect to see us discuss this in more depth
in the future.
While we may be in a
holding pattern for the next few months the longer-term economic and
demographic trends are still positive.
posted by CR English at 7:30 AM
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