Monday, March 14, 2005

Canary in a Coal Mine

Sudden changes in population have historically contributed to inflation. For example, the Black Death in England was a leading factor in the wage inflation of those times. In 16th century England, a population expansion fueled inflation due to the increased demand for goods and services. Thus, anytime a segment of the population expands significantly from a prior on the lookout for inflationary pressures.

The Baby Boomers were born between 1946 - 1964. They started college from 1964 - 1982. And assuming a five year average to complete their scholastic studies...they graduated in 1969 - 1987. While these figures provide insight...what we really need is to capture the center of the bell-shaped curve in this demographic segment.

Let's take the median of when the Boomers were born and that would be the 10th position in the yearly series which is 1955. These Boomers started college in 1973 and finished in 1978. Okay, we have a pretty good start here. But we still need to capture more of the meat in that bell curve. Try to find the heart of the demographic surge we really need to capture the standard deviation. But, that's too hard for this old country boy. I'm going to keep it simple and assume 1/3 from the median value both ways would give us what we need. With that in mind, we would obtain the following information:
Baby Boomers born: 1951 - 1958.
Baby Boomers Start College: 1969 - 1976.
Baby Boomers Finished College: 1974 - 1981.

Wow! Do these numbers freak you about just a bit? Back in 1969 thru 1981, the United States experienced a significant rise in young adults. I don't have the numbers on hand but I'm guessing probably a 20 million plus increase compared to levels from the prior generation. Granted all boomers did not attend college. But, from the years 1969 thru 1981, Boomers were flooding the US economy in more ways than one. Amazing that 1969 was the beginning year of when the glut of Baby Boomers turned 18 as well as the beginning tough times for the US Equities market. Equally amazing is that 1981 was when the majority of Boomers had finished college and flowed into the system. By that time the US had absorbed this new generation and the worst in numbers was behind them. In fact, the rapid expansion in commodities during the 70's due to these boomers coupled with a large, energetic, and young it any wonder that 1982 was the start of the 18 year long bull market?

On to the Echo Boomers. You know, the kids of the Baby Boomers. I've written about them in past articles. These little darlings make up 1/3 of the US population just like their parents make up the other third. They already spend $170 billion per year. First to grow up with computers at home, cellphones, and the Internet. They also drink less, smoke less, and break the law less than prior generations. Teen pregnancy is also way down. These Echo Boomers were born from 1976 - 1995. Will attend college from 1994 - 2013. And will finish college in 1999 - 2018. The median year an Echo Boomer was born is 1985.5 and 1/3 both ways provides the following breakdown:
Echo Boomers born: 1982 - 1989.
Echo Boomers Start College: 2000 - 2007.
Echo Boomers Finished College: 2005 - 2012.

If the Baby Boomer numbers were amazing...these numbers should make the hair on the back of your neck stand up. Interesting bit of data in that the year 2000 marked the beginning of the glut of Echo Boomers into adulthood and at the same time the end of the 18 year bull market. Are we destined to follow the same fate from 2000 - 2012, when the Echo Boomers flood into adulthood as the 1969 - 1981 timeframe when their parents did the same? To answer that I performed some research at the local library.

I found several Business Weeks from the 1970's time period. The conditions described in those magazines mirror our current conditions. I figured 1974 was a great time period to study because we are 5 years past the beginning of the Echo Boom flood into adulthood. And 5 years past the same period in Baby Boomer history would put us in 1974. Here's what I found in the 1974 issues:
  • Several articles discussing rising oil prices and the talks of a bubble in those prices.

  • Rising commodity prices. In fact sugar, orange juice, silver, oil, cotton, and gold were the best performing assets in one issue.

  • Another article discussed rising oil prices and the fact that solar, wind, and more importantly the Canadian Tar Sands would kick in to fulfill the demand. Especially because the oil's recent price now made mining the Tar Sands a viable option.

  • Escalating higher education costs. Enrollment levels were increasing to levels never seen while state budgets were being cut. A situation that is happening now with our colleges.

  • A real insightful article on oil tankers and the surprise that everyone is having in their declining market conditions. With oil prices at all-time highs...why would their market be so bad the article asks. The article goes on to say several company CEO's placed orders for new tankers several months ago and now wish they could cancel those orders. Rising fuel costs and oversupply were the factors blamed in the tankers poor market conditions.

Keep in mind this was a 1974 Business Week. Kinda scary, huh?

Are we at the start of the next Bull market? Or will we be forced to spend until 2012 to absorb these young rascals into our US economy? Time will tell...but keep an eye on your faithful canary in the mine shaft. :-)

Later Trades,


1 comment:

Anonymous said...

The so called Bull market from 1980 to the year 2000, parallels exactly the increase in US gov't spending and the increase in the national debt. The government spending coupled to the multiplier effect of money, during a period of stable and inexpensive energy prices made the US economy look solid and properous. The twenty year period (1980-2000) in reality watched the standard generators of wealth be systematically reduced, removed or destroyed; manufacturing, farming, fishing, and mining. Today, priming the pump with tax dollars is generating less and less in return, while energy costs are eating up savings, investments and spendable incomes. The Baby Boomers have an indentity problem and its not identity theft, but being identified as the cause of the coming financial crisis. So, BB's must sacrifice their Social Security and benefits for the good of the system. Well inflation is a cure all for that. This situation is a 21th century Gone with the Wind experience with BB's acheiving 3rd World status.