How Average Are You?. Live in same state (60%) Have 2 children Eat 3 lbs of PB per year Do NOT floss regularly (90%) Exercise once a week Recycle (50%)

How Average Are You?

Live in same state (60%)

Have 2 children

Eat 3 lb’s of PB per year

Do NOT floss regularly (90%)

Exercise once a week

Recycle (50%)

Shop At Walmart at least Annually (80%)

Believe God exists (80%)

Larry, Mo, Curly (& Schemp) (89%)

Legislative, Judicial, & Executive (20%)

Does NOT have a college degree (65%)

Take a bath or shower(10.4 minute shower, daily)

Own stocks?( 50/50)

How Average Are You?

Selected “Average” Statistics

Drinks 55 gallons of soda a year

Does not wash his hands properly after using public restrooms

Throws away more than 100 lbs of food per year

25% of Americans over 18 abstain from alcohol for life

69% of Americans go to the movie theater at least annually

The Average AmericanFederal Reserve Survey of Consumer Finance

2001 2004 2007

Median Family Income $46.7k $47.5k $47.3k

College Degree 34.0% 36.6% 35.3%

Holds Credit Card Bal. 44.4% 46.2% 46.1%

Amount of Bal. $2.0k $2.4k $3.0k

Of those 45-54

Own Retirement Acct. 63.4% 57.7% 64.7%

Amount in it $51.1k $61.0k $67.0k

Business Development, An ‘S’ Curve Analysis

0

10

20

30

40

50 60

70

80

90

100

1% 10%

50%

90% 99%

Innovation Maturity

.1%

99.9%

Growth

Per

cent

Ado

ptio

nThe S-Curve

Innovation

Growth Boom

Shake-out

MaturityBoom

10%

50%

90%

The Industry Life Cycle

0

10

20

30

40

50

60

70

80

90

100

1% 10%

50%

90% 99%

Innovation Maturity

.1%

99.9%

Growth

Per

cen

t o

f U

rban

Ho

use

ho

lds

1900 1907 1914 1921 1928 1935 1942Cars only for

the RichModel T Design

Assembly Line

Installment Financing

90% Urban

Adoption

The S-Curve in Cars

Innovation Growth Maturity100

90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

Time

47%2000

50%

10%

1990

90%

13%

77%

2004

200573%

2003

63%

58%

2006

200782%

86%

Source: Forrester, Census Bureau

200820011994

2002

19952%1%

Mobile Phone S-Curve


90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

TimeSource: Pew Internet

10%

1993 2000 2007

31%

17%22%

61%

1997

1999

1998

71%

79%73%

74%

2002

2004

20052006

2001

2003

2007

67%

50%

2009

83%

66%

Internet S-Curve


90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

2000.5 2008.5

Time

90%

2004.5

10%

50%

37% 2004

Source: Pew Internet

200222%

200663%

2007

80%

91%2009

Broadband S-Curve


90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

Time

90%

10%

2005

2003

62%

43%

1997 2004 2011

Source: Infotrends, Consumer Electronics Association

60%2007

200977%

Digital Camera S-Curve


90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

Time

90%

10%

50%

2001 2005

2007

20132009

200835%

23%

Source: CTAM

3%

2009

53%

High-Definition TV S-Curve


90

80

0

70

60

50

40

30

20

10

Per

cen

t o

f H

ou

seh

old

s

Time

90%

50%

99%

2003 20082005

200220182013

Source: Masterlink

10%3%0.9% 1% 2009

17%

Car GPS Systems S-Curve

Source: NY Times

S-Curves

S-Curves

Innovations follow a curved pattern of acceptance, or “lifecycle”

Industry supplies on a different cycleMany innovations are moving through

the second half of their growth phase, and will peak near the end of the decade

Innovations tend to be developed by the young

Inflation/Disinflation/Deflation

Quantity of Money Formula for Inflation

MV=PYM=Money Supply P=General Price LevelV=Velocity Y=Real Income

Inflation Indicator

Source: Calculated Risk Blog

U.S. InflationYear-Over-Year Change

Inflation Forecast

Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics

20 Year-Oldson a 3-Year Lag

Minus 63 Year-Olds

Inflation

Inflation

Inflation, in a stable financial system, is based on people and workforce growth

Changes in labor force can be used to forecast inflationary pressures

Tremendous changes are coming

Inflation Fears Are MisguidedIt’s DEFLATION That Will Hurt!

With the US government doubling the asset base at the Federal Reserve and pumping trillions of dollars into the economy, everyone is worried about inflation – too many dollars chasing too few goods.

It’s understandable, but wrong. If the economy remained constant, this would make sense. But we are changing, and the changes will eventually mean deflation, not inflation. Unfortunately, deflation hurts a lot more!

When the US Crashed, the “V” dropped dramatically

MV=PYM=Money Supply P=General Price Level

V=Velocity Y=Real Income

Quantity of Money Formula for Inflation

The Velocity of MoneyGDP to Adjusted Monetary Base

5

10

15

20

25

1960 1970 1980 1990 2000 2010

Source: St. Louis Fed, US BEA

The Value of “M” Is the Size of the Money Supply

Get your arms around how money is created

Printing press – the US Government creates out of thin air

Lending – banks and other institutions create out of thin air through fractional reserve, short borrowing versus long lending

The Fed Was Injecting Cash with “Quantitative Easing”, Increasing “M”

The Added Money Was Offset By Less Velocity

It Hasn’t Worked, So Now Fed Is Printing Dollars

The Federal Reserve controls the printing presses of the US

The Fed does NOT have a bank account. Any purchase they make (like of securities in the marketplace) is done with newly printed dollars

The First $1.5 trillion didn’t restart economy, but it has caused dollar devaluation. What will happen next?

Tug of War Between The Forces of Money Creation

Why is the sheer force of printing money not working?

Because at the same time, we are busy destroying money in other places

Lending Dollars Into Existence(fractional reserve)

Banks are required to hold a percentage of deposits (a fraction), they lend out the rest. If they do not lend, they do not collect interest and cannot pay their depositors.

If a deposit is made for $1,000, the bank can lend $900, thereby “creating” $900 out of thin air. But the other side of the journal entry of the loan to the borrower, is the note that the borrower owes back to the bank.

0

10,000,000,000,000

20,000,000,000,000

30,000,000,000,000

40,000,000,000,000

50,000,000,000,000

60,000,000,000,000

1977 1982 1987 1992 1997 2002 2007

Federal Govt Trust FundsFederal GovtState and Local GovtFinancial SectorForeignCorporateHousehold OtherConsumer CreditHome Mortgage

Government$14Trn

Financial$17Trn

Corporate$11Trn

Consumer$14Trn

Total:$56 Trn !

Total U.S. Debt - 2008

Source: Federal Reserve Flow of Funds Report

Money “Creation” Works Both Ways

But it is already taking place, just not at the Fed.

When any debtor either pays back a loan created through fractional reserve, or has a loan canceled (foreclosure, modification, etc.) then money supply has been contracted.

Go back to the $1,000 deposit with the $900 loan. Money supply went from $1,000 to $1,900 when counting both the deposit and the loan. If the borrower of the new $900 pays off the loan, then money supply shrinks back to just $1,000.

This is going on at a rapid pace as we pay down debts and see massive liquidations, bankruptcies, and foreclosures.

Change in U.S. Debt Outstanding 2000 - 2010

Source: Federal Reserve Flow of Funds Report (FRB Z1), including Domestic Financial Sector

(1,500,000)

(1,000,000)

(500,000)

0

500,000

1,000,000

1,500,000

2,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Financial SectorHousehold MortgagesFederal GovtCorporate DebtState and Local Govt

The Fed Is Pouring Money In

While Borrowers and Lenders are Leaking Money Out

Amount of Money in the Economy

The Money Supply Fight

The Business Cycle and Seasons of the

Economy

Combining Generational Spending Trends, Inflation, and Interest Rates

• 40 year generations• Predictable consumer spending• Workforce pressure on inflation• Ebb & flow of interest rates

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Spring Summer Fall Winter

Stocks/ Economy

Generation Spending Boom

Simple Four Season Economic Cycle Two Forty-Year Generation Boom/Bust Cycles

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Spring Summer Fall Winter

Stocks/ Economy

Generation Spending Boom

Consumer Prices/ Inflation

Simple Four Season Economic Cycle Eighty Years in Modern Times

VIDEOChris Martenson, Crash

CourseFuzzy Numbers

Investing In Each Season

What you are told vs. what really happens

Source: Advisory World, HS DentSource: Advisory World, HS Dent

1970-2007

Efficient Frontier, 1970-2007


1970s

1970-2007

Efficient Frontier, 1970-2007and 1970s


1980s

1970s

1970-2007

Efficient Frontier, 1970-2007and 1970s, 1980s


1990s1980s

1970s

1970-2007

Efficient Frontier, 1970-2007and 1970s, 1980s, 1990s


1990s1980s

1970s

2000s

1970-2007

Article #5 MPT/Markowitz

Ret

urn

(%)

Efficient Frontier, 1970-2007and 1970s, 1980s, 1990s, 2000s

Bond Yields 1928-1933

Attention, Demographics, and the

Stock MarketStephano DellaVigna and Joshua M. Pollet

March 2005

Attention, Demographics, and the Stock Market, 2005

Their findings are consistent with H.S. Dent:

“Taken as a whole, the evidence suggests that changes in age structure of the population have the power to influence consumption demand in a substantial and consistent manner.”


What people THINK happens – Efficient Market Hypothesis

What really DOES happen – inefficient distribution, understanding, and comprehension of important data


And, quantifying our own observations:

“One additional percentage point of annualized demand growth due to demographics predicts a 5 to 10 percentage point increase in annual abnormal industry stock returns.”


These abnormal stock returns are possible because investors do not fully anticipate the effects of demographics in advance:

“[The data] indicates that stock prices adjust as the demographic information enters the forecast horizon.”

But… “[The effect of] short-term demographics is…insignificant.”

Why don’t investors take into account long-term trends and changes?

No access to forecasts of these changes – analysts do not make earnings forecasts beyond 5 years.

Money Managers are rewarded on the short-term.

Slow-moving, long-term changes are ignored in favor of short-term obvious events/changes.


“Our findings have implications for other economics decisions beyond portfolio allocation. Voters and consumers may neglect relevant information about long-term outcomes for their decisions [think Social Security! – HSD] Workers might disregard forecastable future demand changes in their choice of careers…”

Harley Davidson vs. S&P 5001987-2007

Harley Davidson vs. S&P 500Oct 2005 – Sept 2007 (2 years)

Immigration & Migration

Immigration,NOT JOB HUNTING

Historically, immigrants moved here to stay

Now, immigrants come for work, no intention of staying

Immigration to the United States 1820-2006

Source: U.S. Department of Homeland Security

Article #7 & 8 Economy

Average Immigrants per Yearby Age 1945-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70

Age

Nu

mb

er

of

Imm

igra

nts

Source: US Census Bureau

White and Hispanic Populations by Age

0%

2%

4%

6%

8%

10%

12%

Under 5

10 to

14

20 to

24

30 to

34

40 to

44

50 to

54

60 to

64

70 to

74

80 to

84

% o

f P

op

ula

tio

n White

Hispanic

Source: US Census Bureau, 2000 Census

Migration Flows

Movers to a Different State by Age 2000-2005


Movers to Different State: Young vs. Old 2000 to 2005

0

500

1,000

1,500

2,000

20 - 29 60 - 69


3.5x

In T

ho

us

an

ds

% of Americans Moving Each Year1948-2005


Source: New York Times

State Population Growth

Source: United Van Lines, via Unigroup, Inc.

United Van Lines Migration Patterns 2007


United Van Lines Migration Patterns 2009


State % Outbound

Michigan 68.0%

Illinois 58.2%

New Jersey 58.1%

Indiana 57.5%

Pennsylvania 57.4%

North Dakota 57.0%

Minnesota 56.5%

Wisconsin 56.3%

Maine 55.6%

New Hampshire 55.2%

Top 10 Outbound States2009


State % Inbound

???????? 67.8%

Oregon 58.9%

Arkansas 57.7%

Nevada 57.2%

Wyoming 56.3%

Idaho 56.1%

Colorado 56.0%

Georgia 55.6%

New Mexico 55.5%

Texas 55.4%

Top 10 Inbound States2009


State % Inbound

Washington, DC 67.8%

Oregon 58.9%

Arkansas 57.7%

Nevada 57.2%

Wyoming 56.3%

Idaho 56.1%

Colorado 56.0%

Georgia 55.6%

New Mexico 55.5%

Texas 55.4%

Top 10 Inbound States2009

Lack of Mobility from Downturn

NYT April 23, 2009Slump Creates Lack of Mobility for Americans By SAM ROBERTS

“Stranded by the nationwide slump in housing and jobs, fewer Americans are moving, the Census Bureau said Wednesday.

The bureau found that the number of people who changed residences declined to 35.2 million from March 2007 to March 2008, the lowest number since 1962, when the nation had 120 million fewer people.”

http://topics.nytimes.com/top/reference/timestopics/people/r/sam_roberts/index.html?inline=nyt-per

http://topics.nytimes.com/top/reference/timestopics/organizations/c/census_bureau/index.html?inline=nyt-org

BREAK

Demographic Trends in Real Estate

Long Term House Prices vs. Inflation

Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton University Press, 2005.

0

20

40

60

80

100

120

140

160

180

200

1880 1900 1920 1940 1960 1980 2000 2020Year

Inde

x or

Int

eres

t Rat

e

0

100

200

300

400

500

600

700

800

900

1000

Pop

ulat

ion

in M

illi

ons

Home Prices

Building Costs Population

Interest Rates

Sp

end

ing

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

Vacation / Retirement Homes

63-65

Resorts54

46-48Vacation Homes

37- 42Trade-Up Homes

31

Starter Homes26

Apartments / Shopping Centers21

Offices

18

Colleges

Real Estate Spending Cycles



0

50

100

150

200

250

1880 1900 1920 1940 1960 1980 2000 2020

Home Prices


0

50

100

150

200

250

1880 1900 1920 1940 1960 1980 2000 2020

HomePrices

Building Costs


Source: Amherst Securities

Pre-Tax Income Borrowing Power

2.8 times

Borrowing Power of a Typical Home Purchaser

0

50

100

150

200

250

1994 1996 1998 2000 2002 2004 2006 2008 2010

-55%-65%

-33%

Average US Home PricesJanuary 1994 – August 2010

Source: Standard & Poor’s Case-Shiller US 10-City Index

Sea

son

ally

Ad

just

ed

In T

ho

usa

nd

s

Case-Shiller Top Metro AreasPercent Decline from Peak Values

Miami

Las Vegas

Phoenix

-60% -40% -20% 0%

-54%

-52%

-48%


Washington

Minneapolis

Miami

Las Vegas

Phoenix

-60% -40% -20% 0%

-54%

-52%

-48%

-36%

-34%


Dallas

Charlotte

Washington

Minneapolis

Miami

Las Vegas

Phoenix

-60% -40% -20% 0%

-54%

-52%

-48%

-36%

-34%

-11%

- 8%

The Ticking Time BombNegative Equity by Mortgage Sector

Source: Deutsche Bank August 5, 2009 Report

Q1 2009 Q1 2011 Projected

Total mortgage market 26% 48%

Option ARM 77% 89%

Subprime 50% 69%

Alt-A 49% 66%

Prime jumbo 29% 46%

Conforming 16% 41%

Mortgage Defaults by Sector

Defaults in Prime Mortgages

First Time Defaults

Inventory Overhang

Liquidations

Rising Mortgage Defaults

We are here

Mortgage ResetsWhat the Fed is Trying to Stop

Source: Loan Performance, Amherst Securities

Home Price to Rent Ratio1983-2010, rent = 1 in Q1 2000

Case-Shiller 20-City Home Price Index

100

120

140

160

180

200

220

2000

2002

2004

2006

2008

2010

Source: Standard & Poor’s Case-Shiller US 20-City Home Price Index

Sea

son

ally

Ad

just

ed

In T

ho

usa

nd

s

Source: Calculated Risk Blog

NAHB Housing Market Index and Single Family Starts

0

300

600

900

1200

150019

63

1968

1973

1978

1983

1988

1993

1998

2003

2008

New Home Sales January 1963 - September 2010


Sea

son

ally

Ad

just

ed

In T

ho

usa

nd

s

New Push on Mortgage Relief, WSJ, 11/30/09, A3

Defaults and Lost Homes2000 – 2012 (est.)

Changes in The World Around Us

0 5,000 10,000 15,000 20,000 25,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e

Population in Thousands

US Population 2010

0 1,000 2,000 3,000 4,000 5,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


French Population 2010

0 1,000 2,000 3,000 4,000 5,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


UK Population 2010

0 1,000 2,000 3,000 4,000 5,000 6,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Italian Population 2010

0 2,000 4,000 6,000 8,000 10,000 12,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Japan Population 2010

0 1,000 2,000 3,000 4,000 5,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


S. Korea Population 2010

0 30,000 60,000 90,000 120,000 150,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Chinese Population 2010

China’s One-Child Policy Still Active

China Bolsters One-Child Policy By NICHOLAS ZAMISKA, January 8, 2008; Page A14, WSJ

“The Chinese government is seeking to shore up the aging family-planning policy that has proved resilient since its inception in the late 1970s. The policy limits most urban couples to one child and broadly promotes small families throughout the country. Fines are a common punishment.”

“Prof. Zhou found through her research that for those who can't afford the fines, the government may still force women to undergo sterilization surgery in addition to confiscating whatever assets they can. "They take your pigs, your water buffalo. They take everything so you have nothing," she says.”

“Reports still surface of family-planning officials, who are often under intense government pressure to ensure that births in their districts don't exceed certain quotas, forcing women to have abortions.”

And Still Wreaking Havoc

Chinese Bias for Baby Boys Creates a Gap of 32 Million, Sharon LaFraniere, 4/11/09, A5, NYT

“A bias in favor of male offspring has left China with 32 million more boys under the age of 20 than girls, creating “an imminent generation of excess men,” a study released Friday said.”

“In 2005, they found, births of boys in China exceeded births of girls by more than 1.1 million. There were 120 boys born for every 100 girls.”

“They attributed the imbalance almost entirely to couples’ decisions to abort female fetuses.”

But the Government Isn’t Totally Oblivious

China has relaxed one-child policy in Shanghai as 1 in 5 of its population is currently over 60

Now, if a couple is comprised of 2 only children, they are allowed to have a 2nd child

Even so, by 2020, 1 in 3 in the population are expected to be over 60.

0 30,000 60,000 90,000 120,000 150,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Indian Population 2010

0 4,000 8,000 12,000 16,000 20,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Brazilian Population 2010

0 2,000 4,000 6,000 8,000 10,000 12,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Mexican Population 2010

0 2,000 4,000 6,000 8,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Turkish Population 2010

0 4,000 8,000 12,000 16,000

0-4

10-14

20-24

30-34

40-44

50-54

60-64

70-74

80+

Ag

e R

ang

e


Russian Population 2010

The Situation in Russia Is so Bad That…

In 2007 President Putin declared 2008 the Year of the Family. Sept. 12, 2007 was made into a holiday called “Family Contact Day.”

Russians were encouraged to stay home and engage in marital intimacy in the hopes of producing children on Russia Day, nine months later, on June 12, 2008.

The new holiday extends Russia’s promotion of procreation, urging couples not only to have children but also to provide those children with two-parent, stable family lives.

It Didn’t Work

Russia’s population stands at 141 million people and is falling.

The country shrank by over 600,000 people, about 1/2%, in 2008 because of declining birth rates as well as falling life spans.

India Spending Wave

0

40,000

80,000

120,0001

950

19

60

19

70

19

80

19

90

20

00

20

10

20

20

20

30

20

40

20

50

20

60

20

70

20

80

20

90

Innovation and Inflation Spending

China Spending Wave

20,000

60,000

100,000

140,0001950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090


Japan Spending Wave

4,000

6,000

8,000

10,000

12,0001950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090


0123456789

10

20

00

20

05

20

10

20

15

20

20

20

25

20

30

20

35

20

40

20

45

20

50

20

55

20

60

20

65

20

70

20

75

20

80

20

85

20

90

20

95

21

00

Source: Investor’s Business Daily, 4/22/2004, Pg A16

In b

illio

ns

Total World PopulationProjection for 2010-2100

Health & Wealth Around the World

Hans Rosling

TED Presentation

How Average Are You?. Live in same state (60%) Have 2 children Eat 3 lbs of PB per year Do NOT floss regularly (90%) Exercise once a week Recycle (50%)

Documents

velocity slide

young slide

inflation indicator

internet scurve slide

s curve analysis slide

broadband scurve slide

us bea slide

real income slide