WatchWhat makes stock values go up or down? Well, it depends on what driving factors are motivating stock valuations. Most people think stock fluctuations have to do with how much profit the company is making, their price to earnings ratio, or where people think the company is going. This is all wrong. The only thing that gives a stock value is the fact that, at any given moment, there are more people with more dollars willing to buy the stock versus the number of people and their dollars who want to sell it. That’s it! All indicators are trying to predict that ratio.
From a historical prospective, the long-term trend for stocks has been upward. So in fact this would indicate that, over the last 60 years more people have steadily brought more money to the stock market year after year. Ok, but past stock performance does not indicate future performance. This is taught on the first day in high school finance class.
Why have stocks steadily increased? What differentiates today with the last 60 years? The answer is; there was steady population growth in developed nations. This produced a steadily increasing supply of money, M3, from more and more people activating fractional reserve banking. There is a very strong relationship between M3 and the overall “net worth” of the stock market. Because stocks need a transaction to have worth, the available funds, and the number of potential buyers for that transaction, essentially determines the potential worth of those stocks, everything else the same.
The developed countries; all of Europe, U.S., Japan, Russia, Canada, and Australia will all have stagnant or shrinking populations over the next 30 years. So, there is not a whole lot of room for the value of stocks to increase because their combined M3 will not quadruple or quintuple like it has over the last 60 years. Note; immigrants don’t really count for the population growth interested here because they generally come from undeveloped nations and don’t tend to buy stocks. At least not initially, they usually work at Wendy’s or Wal-Mart. So, some of these countries show small population growth but it is from bringing in more people from undeveloped nations into their country.
Because the pertinent population of the developed nations has just about peaked, stocks have just about peaked since developed nations’ M3 has just about peaked. Unless people decide to shift their basket of goods towards stocks and away from food to compensate for the declining potential demand, stocks will go down over the next 30 years. Or maybe India will have massive development in their country and will maintain the value of U.S. stocks. But why would India help sustain some other countries ponzi scheme? Wouldn’t they want to start their own, with their own stock start ups, like Facebook did, and take everyone’s money and run?
No significant developed nation is authentically (without immigration) replacing their own population (2.1 children per woman).
http://en.wikipedia.org/wiki/List_of_countries_and_territories_by_fertility_rate
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Yes, I never heard it put that way before, but I agree.
Demographics are the only important numbers. Dollars are just abstractions on top of the fundamental demographics.
To be rich is to have many humans obeying your commands and serving you, that's all.
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We're also nearing the end of the "cheap energy" era. Economic growth in an industrialized economy requires an increase in energy consumption. Our machines, cars, and power plants are hungry monsters.
The "big picture" is the human population explosion overwhelming the available natural resources. I'm not the first person to see that.
Even if we wanted to take a "back to nature" approach and live like everyone did 1000 years ago, we couldn't. There are far too many humans around.
I actually don't think the "mad max" or "cannibal anarchy" scenarios are all that far-fetched.
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Stock markets and real economies definitely follow demographics. China is stalling at the exact moment its supply of new labor is starting to thin. The biggest demographic story of the next twenty years will be China.
The west will have a depressing muddle through story but China has a large chance of civil war or very large disturbances.
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All living things reproduce/expand until they hit the limit on an essential resource, conditions deteriorate, or they become prey for another. Maybe we are experiencing all three.
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The stock market is a leading indicator, so stock prices should peak well before population peaks.
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taxee says
Except humans have no "natural predators," save for maybe the global banking elite. Although technically that's cannibalism, not predation.
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wthrfrk80 says
So humanity will sustain a hyper-growth until a certain point. Then it will collapse. Not unlike cancer.
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Peter P says
That's why, even though I'm anti-abortion (except in the "extreme" cases), I'm pro-birth-control.
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wthrfrk80 says
I worry that you might be right about that. It scares me a little. I think about the things I do with my time that make me numb and unproductive. I think I should be getting some kind of solar power generator. Something for desalination of water. A year's worth of dehydrated food from Costco. A radio with a generator. Another gun for the house. What is is the max that could cost me. 3k? It might get us through some short term chaos.
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Not quite. ALL nations population must have peaked. The developed nations are where the most successful companies are domiciled but these make a huge portion of their profits from the developing world.
Think BMW, Nestle, Apple, LVMH, Caterpillar, Deere, etc. are making money in the developing countries not just the developed ones.
Stocks will stop going up when every person on earth has a standard of living like Americans do. This should take plenty of time and by then I hope to have sold my stocks already.
I'll actually probably be dead before that.