I decided to add Brazil, France and India into the demographic composites (currently USA, China, Japan, UK and Germany) to expand the major global giants from the core 5 to 8 (based on GDP / stock market / population). I gave all three a weighting of 1, the same as UK and Germany (China and Japan 2, USA 4). This is the result:
From 1980 to 2000 investors had it good, with all three measures in strong rising trends. The current window, marked by the red box, is the opposite, with all 3 trending down, but as we are working on 5-yearly intervals in the data, it would be useful to be more precise, so here are the forecast turning points in the biggest economy, the US. In 2014 US net investors bottoms out its downtrend and turns into an uptrend; in 2019 the US M/Y ratio moves into a new uptrend; and in 2022 the US M/O ratio switches from down to up. That means there is a gradual turn around in US demographics over a period of years and that the current bull market since 2009 is counter trend. The key is whether the current strong bull ought to roll over into a bear market, and I believe it should, as all 3 demographic measures for the US are still currently declining.
In the 1970s most of the 8 giants were in declining demographic trends and in the 1980s and 1990s most in rising demographic trends. That made for a fairly clear broad global bear market followed by a fairly clear broad equities bull market. Going forward this is not the case as we have divergence amongst these leading countries and less compelling trends. As global stock markets continue to largely move together I think it is still more likely that we will have a ‘global’ bull or bear with some countries dragged along counter internal demographic trends. I feel fairly sure that the demographics of the US, still the most dominant economy and leading stock market, will be very important to the overall trend. To this end we can be glad that the USA is ending down trends in all three measures between 2014 and 2022, but what happens over the next few years whilst it bottoms out these negative trends is less sure.
Japan’s net investor and MY demographics have been rising since around 2002, with the former due to top out by around 2015 and the latter by 2020. As Japan’s stock market has been suppressed until November last year I believe there is a good chance of a strong belated bull market here and certainly for the next couple of years. The threat to this is if the US market tumbles into a bear in line with its demographics, pulling down the world. Nonetheless I expect Japan to outperform so choose the Nikkei to load in on the long side.
Meanwhile, France suffers the worst demographics trends forward out of the 8 giants. Here we see the three demographic measures of France versus Brazil and India.
As of now all three demographic measures for France are trending down with no let up until around 2035-2040. Additionally the CAC is on a p/e of 17 currently, one of the more expensive markets, with no demographic justification. I therefore see France as a good market to short going forward. However, right now there is evidence of a pan-Eurozone improvement ahead this year, with France’s PMIs turning up along with other Euro nations. I am therefore not convinced right now is the time to open short. However, I will be looking for the opportunity ahead.
The best period ahead for a global bull market would appear to be from around 2022, at which point the USA and China become stronger again, with Brazil and India in support. Clearly that is some way off. The next solar peak is likely to be around 2025, and should produce a secular peak in ‘something’. The work of the current solar peak is also likely not yet done, if the smoothed peak is still ahead. With all that in mind, I suggest these are the possibilities: (1) commodities go parabolic 2013-2014 and make their secular peak, taking stocks into a bear before stocks become the desired class again, led by Japan, Brazil, India (2) commodities only make an intermittent peak around this solar peak and make the secular peak around 2025’s solar peak, making for a 2 solar cycle commodities bull (supported by global wierding, global population growth) with equities in an extended global bear, (3) Japan equities go crazy and makes a truly rapid bull market to exhaustion closely following this solar peak (belated take-off, ferocious climb, premature exhaustion versus demographics) or (4) Japan makes a 13 year bull market and peaks around the next solar peak, extending its run to a few years after demographics have turned, i.e. a greed peak again.