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The Economics of Japan’s Naughty Old Men

You have to love the Japanese language — they have a word for pretty much everything.

A fine example is choiwaru oyaji — defined as a middle-aged man who is “slightly bad,” in a recent article.

Everyone knows the type: the naughty old guy in the office who likes to flirt with the receptionist and tell the occasional off-color joke at the water cooler. He’s not a “dirty old man” per se, but more of a rascally little boy who never fully grew up. He’s in his 50s but still young at heart, and he takes care of himself — he usually has a good haircut and will generally not be seen in public without a sports jacket and a classy pair of shoes. He’s certainly no beaten-down, everyman slob like Al Bundy (or Al’s Japanese equivalent).

Give credit to the Japanese for inventing a phrase that encapsulates this mental image!

The existence of millions of these choiwaru oyaji in Japan is one of the reasons that, despite two decades of recession, the country has remained the largest market in the world for luxury goods. After all, in addition to buying himself the requisite Rolex watch and Montblanc pen, he likely has to buy a Louis Vuitton handbag for his wife, daughter, mother, and possibly a mistress or two. Yes, the “slightly bad middle-aged man” has quite a few women he feels obligated to impress.

Not surprisingly, Japan absorbs roughly 30% of the world’s luxury goods, compared to roughly 20% each for the United States and Europe.

The luxury market is also supported by the other end of the spectrum, which — in typical Japanese form — also has its own word. A makeinu is a single woman in her 30s without children (the literal translation is “loser dog” — see sociological explanation here). These are essentially the Japanese equivalents of the Sex and the City characters. You can imagine that Sarah Jessica Parker’s wildly popular TV show would have never gotten off the ground had it been invented in Japan; “Loser Dogs and the City” just doesn’t have the same marketable ring to it.

At any rate, Japan is full of makeinu in their 20s and 30s who, in lieu of getting married and raising children, have opted to continue living with their parents rent-free and to spend their disposable income on shoes and designer purses.

Between “slightly bad middle-aged men” and “loser dogs,” it’s easy to see where Japan gets its appetite for luxury goods.

That appetite has started to wane, however. In the wake of the 2007-2009 global recession, the New York Times tells us that “Once Slave to Luxury, Japan Catches Thrift Bug.”

It appears that the recession has accelerated a generational trend. The choiwaru oyaji are aging out of the prime luxury spending years; men in their mid-60s and 70s are far less likely to splurge on luxury goods than a man in his mid-50s, at the peak of his income and power. Meanwhile, younger girls appear less interested in brands than their older sisters.

So, could Japan’s long love affair with luxury goods finally be drawing to a close? It’s too early to say, but it does appear that, at the very least, Japan’s demand for these products will moderate due to changing demographic trends. The real growth for the sector will have to come from emerging markets with legions of nouveau riche — such as China, India, and Brazil.

Charles Lewis Sizemore, CFA

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Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The Iran Protests and Demographics

By now, everyone should be aware of the anti-regime protests taking place in Iran.   The country is experiencing unrest not seen since the 1979 Islamic revolution that deposed the Shah and brought the current regime to power.  The “spark” that ignited this rebellion was the disputed presidential election, of course.  But the “tinder” that caused this fire to spread are Iran’s demographics.  As you can see from the charts below, Iran is primed for revolution.

We’ll start first with a flashback to the original 1979 revolution, the one in which young Islamic militants  shocked the world by holding 52 American diplomats hostage for over a year.  This is the event that most historians mark as the beginning of the global Islamist movement.   The reasons for the revolution are too complex to be discussed in a short blog post, but looking at Chart 1 it’s not hard to see why it was a success.

During the Islamic Revolution, 1979 American Baby Boomer student revolutionaries  in the 1960s used to say “Never trust anyone over 30,” and there is a reason for this.  A young person has nothing to lose and has the youthful audacity to believe in change (for better or worse).   But by the time a person reaches their 30s, they have a career, a spouse, a family, and a stake in the status quo.  As we age, we get more resistant to change because, at the end of the day, we have more to lose.  Why risk your livelihood for abstract ideals like “democracy” or “freedom”?

So, how do Iran’s demographics look today?  In a word, “revolutionary.”

Consider Chart 2: Iran’s population is absolutely dominated by the 15-34 age group.  This cohort includes everything from rebellious teenagers to idealistic college students to frustrated and unemployed 20- and 30-somethings — exactly the kind of people with the reckless abandon needed to launch a revolution. We have no real way to handicap the likelihood of success for Iran’s young revolutionaries today.  Their passion is impressive, but they are up against some truly nasty people who will do anything to stay in power.

The Tiananmen Square protests in China twenty years ago were inspirational to those watching, but in the end they accomplished very little.   The might of the Chinese state was too much for a ragtag band of students.   Still, given their sheer numbers today, the young Iranians have a fighting chance to un-do the Islamic revolution of their parents’ generation and replace it with a more liberal revolution of their own.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The Age of Aging

We recommend you grab a copy of George Magnus’s The Age of Aging. Mr. Magnus is a senior economic advisor at UBS, and his new book is probably the best “big picture” analysis on demographic trends that we have seen since Philip Longman’s The Empty Cradle.  Magnus’s work is a fine complement to our own research, and it deserves a place on your bookshelf.
In the pages that follow, we’re going to quote Magnus on various topics and compare his views to those of our own and of other commentators that we follow.

On the History (and Future) of Retirement:
In the preface to the book, Magnus writes,
Many of the premises on which modern welfare programs were established have changed or soon will.  Retirement pensions, for example, were designed to allow people to stop working and enjoy their last few years in relative comfort while making way for new, younger workers.  Today, although pensioner poverty is becoming a growing problem…retirement is for many an extended period of state-supported or company-financed leisure, which was never anticipated….

To address these challenges over the next decade or two, it is probable that the role and influence of the state, and what is demanded of it, will expand.
There is no question that the concept of retirement has fundamentally changed over the years.  Today, it is viewed as a true entitlement, something that is “owed” to retirees who have spent their lives working and paying Social Security taxes or union dues.  But as Magnus points out, it was not always this way. Continue Reading →
Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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