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13. Woman with a Book_Picasso.jpg

Pablo Picasso (Spanish 1881–1973). Woman with a Book, 1909. Oil on canvas.

” Intellectual growth should commence at birth and cease only at death.” 

-Albert Einstein

The quote above is from a morning brief from Hedgeye and the only issue I have with it is this:

If you all at Hedgeye believe Einstein’s work to be universally understood and in addition, hold that empowering yourself through educating yourself to improve your own research process is at the upmost importance, then why must all advisories (either foreign or domestic, real or imaginary) be branded with the scarlet letter of “Macro-Tourist”?

By citing Einstein at the top of a financial morning brief, wouldn’t a equal and opposite reaction be that of a group of astrophysicists sitting around their LHC           ( Large Hadron Collider’s), instead of their terminalsbranding you with the ensign of “Astrophysics-Tourist”. 



In order to disillusion anyone who may think that my position was a sinecure, I shall now digress to the infamous, “Einstein in Heaven” joke.


Einstein dies and goes to heaven only to be informed that his room is not yet ready. “I hope you will not mind waiting in a dormitory. We are very sorry, but it’s the best we can do and you will have to share the room with others.”, he was told by the doorman named Pete. Einstein says that this is no problem at all and that there is no need to make such a great fuss. So Pete leads him to the dorm. They entered and Albert was introduced to all of the present inhabitants. “See, Here is your first room mate. He has an IQ of 180!” “Why that’s wonderful!” Says Albert. “We can discuss mathematics!” “And here is your second room mate. His IQ is 150!” “Why that’s wonderful!” says Albert. “We can discuss physics!” “And here is your third room mate. His IQ is 100!” “That’s wonderful! We can discuss the latest plays at the theatre!” Just then another man moves out to capture Albert’s hand and shake it. “I’m your last room mate and I’m sorry, but my IQ is only 80.” Albert smiles back at him and says, “So, where do you think interest rates are headed?”



March is an ugly month for gamblers. It is a time of deep mud, foul treachery and guaranteed personal failures. I have always hated March, for personal reasons, but as a Gambler, I really hate it.

Nothing good has Ever happened in March. It has Never failed to bring horrible Fear, Grief and extremely tangible Loss down on me — and I know in my heart that this year will be no different. I get the creeps every time I look at the calendar…. Big trouble, soon come.

Even Astrologers will tell you that March is a time to lay low and beware of taking Ricks. Disaster is Certain because March is ruled by Mars. The sun is in Pisces, which is the worst time of Any year for making Decisions. They are sure to be made for reasons of Emotional disturbance, rather than Logic or rational thought. That is the Law of the Universe.

Instead of the usual deluge of charts with lines, which crudely adorn annotations that attempt to strengthen my conviction on a investment thesis, let us (myself the sole reader) deep drive into the real drivers to the economy. Think of these drivers as the PEGs in your Gordon’s growth rate model forecasts; interest income, interest expense & other expense income.

In a paper entitled, Fertility Is a Leading Economic IndicatorMs. Kasey Buckles, Mr. Daniel Hungerman of Notre Dame & NBER, along with Mr. Steven Lugauer of the University of Kentucky, postulates that fertility may actually be a leading indicator to a recession.

According to the authors:

“Many papers show that aggregate fertility is pro-cyclical over the business cycle. In this paper we do something else: using data on more than 100 million births and focusing on within-year changes in fertility, we show that for recent recessions in the United States, the growth rate for conceptions begins to fall several quarters prior to economic decline.”

This analysis is shown in the middle graphic, which has been extracted from their paper, and as the chart shows:

“The almost prescient decline in fertility at the onset of the last three recessions is evidence that people react rapidly to changing economic conditions in even their most personal choices, such as whether or not to conceive a child.”

The implication is that family planning decisions may actually be much more sensitive to more coincident economic indicators such as consumer confidence and durable orders. This flies somewhat in the face of the commonly held view that the long “production time” of creating babies makes their production less responsive to shorter term economic fluctuations.

Conception and GDP Growth Rates.jpg

More to the point, a recent post on Econimica elaborates on the implications of childbearing on the global economic landscape. Which will be typed out verbatim, in order for me to fully contextualize the “Peg” drivers to the economy.

The global economy is the sum of its production of goods and services versus its capability to consume those. This article will outline the mismatch of fast rising capacity versus the deceleration of consumptive capability.

As for productive capacity; mechanization, innovation, technology, and cheap debt have helped ramp up the potential. Going forward, a flurry of advancements including AI, robots, and autonomous vehicles are among the slew of factors that will drive productive capacity even higher.

Regarding the potential capability to consume; each person is essentially a unit of consumption multiplied by their earnings, savings, and access to credit. But I really want to focus on the childbearing population (ages 15 to 45 years old) and births to show what is taking place and what is yet to come. In the charts below, I exclude Africa because they haven’t the earnings, savings, or access to credit to be anything more than a very minor rounding error from a global economic standpoint… but they represent such a large portion of global population growth as to skew the data. Likewise, African’s represent a very small portion of global immigration (Detailed Here).

Global Childbearing Population (x-Africa)

In the first chart below, maroon columns show the annual change in childbearing population and blue line the total childbearing population. Annual growth peaking in 1988 at +46 million annually… down over 90% to just +4 million).

Global Childbearing Population (x-Africa).png

Below, the annual change in childbearing population ( as a percentage of total x-Africa population… maroon columns) versus total childbearing population (blue line) and adding the federal funds rate (black line) and global debt (red line). Tellingly, the fed funds rate (approximating inflation) peaked simultaneous to the peak in annual childbearing population growth. The rise, peak, and now deceleration in the annual childbearing population has essentially been the driver for the rise, peak, and now decelerating growth in demand. The substitution of fast rising debt for the decelerating population is plain. The subtle uptick in YoY childbearing population change over the next five years is the end of the road for growth … and from there on there is only outright declines likely hand in hand with negative interest rates and parabolic debt creation.

Fedfunds, debt, global demand.png

The Federal Reserve and Central Banks around the world are cutting interest rates against a decelerating base of growth. This is promoting the creation of significant new capacity. That new capacity can only be sustained by even greater cuts and deficit spending plus central bank asset buying. Further, the asset bubbles and inflation of the policies absent wage growth appear to be further decelerating family formation. This is creating a Federal Reserve driven downward in a spiral as it is the young that drive growth. The chart below shows US income and spending by age of head of household… 45-54 yr/olds make and spend twice as much as those under 25 or those over 75 yrs/old. This is likely even more pronounced globally.


HouseHold_Expenditures.pngGlobal Births (Excluding Africa) Continue Declining
Buried deep in the back pages of the internet, stories and details of collapsing births are ripe.  Some examples:

  • Birth Rates Hits 10-Year Low in Russia (HERE)
  • S. Korea’s Demographic Time Bomb Ticking Faster Than Thought (HERE)
  • Termination of China’s One Child Policy…Much Ado About Next to Nothing (HERE)
  • Brazil 2016 Births Fall, Now Just 2/3rds of Early 1980’s Peak (HERE)
  • US Birthrates at Record Lows, Total Births 8% Below 1950’s Peak (HERE)

The global childbearing population growth (red line in chart below, excluding Africa) is ending but the number of births per five year periods (blue columns, excluding Africa) has been declining for decades. Total births peaked in about 1988 and have been declining since despite the still growing childbearing population.


However, the childbearing population peak (x-Africa) will take place in 2030, and indefinite decline from there combined with already negative birthrates could sends births reeling significantly more than the UN’s medium variant (charted below).


Depopulation Ground Zero… East Asia

East Asia is China ( + HK, Macau, Taiwan) , Japan, N/S Korea, and Mongolia. Total births here have nearly fallen in half, consistently declining since peaking in the 1965-70 period. But since 2005, the depopulation loop is in high gear as the shrinking childbearing cohort and negative birth rates combine among nations with net emigration. The childbearing population is now shrinking fast, already down 120 million or about 15% fewer persons of childbearing age. By 2035, this population will be about 215 million smaller, a 27% reduction of those capable of reproduction and births nearing a 2/3rds decline.


As for Europe, births peaked even earlier than E. Asia, failing since the late 1960’s and the childbearing population began declining by the early 1990’s but net immigration has slowed the depopulation loop.


As for the combined US, Canada, Australia, and New Zealand childbearing population and births … never have births equaled the peak seen in the late 1950’s despite the near doubling of the childbearing population. Even high rates of immigration have not resulted in a net rising quantity of births.



The global economy is set to continue increasing its capacity to produce more and produce it more efficiently. However, excluding Africa, the population capable of childbirth and their offspring are set to accelerate their declines … and resultant global consumption hopelessly overmatched versus the significant overcapacity being created. Significant depopulation of young populations is a given while elderly populations continue exploding. Only through this lens can one understand the true problems facing an economic system premised on infinite growth. We are at the end of an epoch and hopefully the beginning of another… the confusion in the interim and messy attempts to sustain the old system shouldn’t be surprising, although these attempts haven’t a change to succeed.

Extra Credit:

India turned the corner to a declining number of births over 15 years ago and continues tumbling.  India which has seen it’s fertility rate tumble from nearly 5 to a 2.3 rate in 2017 (2.1 is zero growth)…the same India where all the population growth is happening in the poorest Northern regions with incomes in line with Sub Saharan Africa (among people who don’t migrate elsewhere for cultural and religious reasons) while some relatively wealthier Southern regions have fertility rates even below that of China and Japan.


By Mr. Chris Hamilton

Right and to add a bit of generational commentary to the mix, here is Mr. Neil Howard, author of the acclaimed book, The Fourth Turning, and generational analysts at Hedgeye, speaking to the Strategic Investment Conference in San Diego late last week. You can buy a virtual pass online for 50% off. SIC 2018 live blog.

Howe said that demographics and generational factors have a huge impact on equity prices in the long run. Not only that, he thinks that there’s now a generational shift in wealth distribution that could spark major political and economic disruption.

Today’s Demographics Defies Conventional Wisdom

The main example Howe shared is that people in the 75+ age bracket still dominate stock ownership by far. This defies conventional wisdom that people reduce risk as they retire and leave the workforce. Meanwhile, Millennials have lower income and stock ownership levels than previous generations did at the same age.

This is a key change as senior adults once had the highest poverty rates. Younger people are now challenging that once-safe assumption.

Howe also pointed out striking differences between early and late Baby Boomers. Those born in the mid/late 1940s inherited some of the Silent Generation’s wealth and good fortune. Late-stage Boomers born in the early 1960s score lower in all kinds of metrics.

Major Political and Financial Disruption Is Ahead

Neil Howe ended  with an update on his Fourth Turning generational theory. He thinks we are about midway through it. From an economic standpoint, he foresees inflation fear and Fed tightening, which will be followed by a painful recession.

Politically, Millennials desperately want civic re-engagement. They are seeking to completely restructure institutions. The right wing is a brick wall on this subject and numbers have let them hold off the pressure so far. This will change as Millennials grow older and Boomers die.

Howe also pointed out that generational wealth transfer is going to be highly concentrated, reflecting current wealth inequality. Boomer wealth will flow to younger generations but the vast majority of Generation X and Millennials will get very little.

As that happens, Howe anticipates major disruption, by which he means ugly inter generational conflict.



In-Text Citations


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