About Charles Lewis Sizemore, CFA

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Terrorism, Russia, and Geopolitical Concerns for the Decades Ahead

Over the past decade, the focus of the news media has been on Islamist terror organizations such as Al Qaeda, and understandably so. The September 11, 2001 attacks were the biggest acts of terror in history, and every American remembers well the site of the twin towers falling to the ground. It was a traumatic experience that set into motion a chain of events that culminated in the Iraq War in 2003.

But as devastating as the 9/11 attacks and their aftermath were, they must be taken in context. Al Qaeda, even were the organization to acquire contraband nuclear devices, has never had the ability to seriously threaten the existence or power of the United States. And all of the rhetoric about weapons of mass destruction aside, a nuclear-armed rogue state like Iraq under Hussein, Iran, or North Korea would likewise lack the ability to seriously threaten the existence or power of the United States. They could potentially destroy one or more major cities, kill millions or tens of millions of civilians, and severely disrupt our economy, but annihilate us? Not a chance. The only country today that could credibly be said to have that power would be Russia—though in the not-too-distant future, China may too share that distinction.

The most serious threat to world security and peace is not terrorism but great power rivalry. At least this is the view of Steven Rosefielde and D. Quinn Mills, authors of Masters of Illusion: American Leadership in the Media Age.

According to Rosefielde and Mills, “Conflict of the great powers, when it comes, is the greatest danger mankind faces. For this reason it is essential always to keep our eye first and foremost on the great powers.”

I appreciate a historical perspective. As I wrote in the April 2010 HS Dent Forecast, I truly believe that King Solomon had it figured out 3,000 years ago when he concluded that there was nothing new under the sun. 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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Geeks, Geezers, and Googlization

“What is a generation?” asks Ira Wolfe in his new book Geeks, Geezers, and Googlization. “A generation is a group of people who are programmed by events they share in history while growing up… a common set of memories, expectations, and values based on headlines and heroes, music and mood, parenting style, and education systems.”

I would agree with this definition, and would add that it ties in with the concept of generation gap. Parents (and sometimes even older siblings) often do not “get” their kids. They don’t understand their vocabulary. They don’t understand what motivates them. And they absolutely, for the life of them, cannot understand why a pieced eyebrow is cool. (Who am I to criticize…in my childhood, coolness was defined by acid-washed jeans that were tightly rolled around the ankles and permed hair and makeup on male rock stars. Go figure.)

Mr. Wolfe’s book is an interesting study on the relationships between the generations in the workplace. It’s very similar in substance to the generational work done by William Strauss and Neil Howe (Generations, The 4th Turning, Millennials Rising), but it’s much less academic and, frankly, quite a bit easier to digest. Corporate executives who find themselves managing a multigenerational workforce should find the book quite valuable, as should anyone struggling to understand the generation gap in their own home, for that matter. 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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Changing Global Demographics: Christians and Muslims in the Middle East

“Across the Middle East, where Christianity was born and its followers once made up a sizable portion of the population, Christians are now tiny minorities,” writes Kristen Chick. “Driven by different factors — the search for better opportunities abroad, their status as targets of Iraq’s sectarian conflict, a low birth rate, and discrimination — the trend largely holds true across a region where Christians have maintained a presence for two millenniums.” — From “The Wane of Christians in the Mideast,” Christian Science Monitor print edition, January 24, 2010.

The demographic changes happening in the Middle East have interesting implications for the economic development of the region, not to mention the geopolitics as well. We’ll cover some of these trends today.

Ms. Chick’s article reminded me of several long conversations I’ve had with a Jordanian friend, a doctor from that country’s small Christian minority. Not to play on stereotypes, but many of these conversations were had over the requisite hookah (a water pipe used for smoking flavored tobacco for those unfamiliar with the word).

His life story is typical of his coreligionists across the region. His name, “Ala’a,” is an old Arabic name that predates the rise of Islam (“Aladdin,” from the Arabian Nights, is a more recent Islamic variation of the name). But to untrained Western ears, “Ala’a” is indistinguishable from the Muslim name for God, “Allah.” It’s hard enough to explain to a layman that “Arab” and “Muslim” are not the same thing without your Christian name sounding like Muslim God.

At any rate, Ala’a was one of those Middle Eastern Christians who left, in Chick’s words, for “better opportunities abroad” and he’s not alone. He has several cousins scattered across the United States and elsewhere, virtually all of which are male. This leads us to one of Chick’s second points — the low birthrate among Middle Eastern Christians.

For a variety of reasons, including, among others, a higher level of education than the general population and the legacy of the relationship between the old European colonial masters and the Christian Arabs, the Christians in the region have birthrates that are close to European lows, while their Muslim countrymen have birthrates that are significantly higher. You don’t have to be a mathematician to understand that this means that the Christian subpopulation will become an increasingly smaller minority over time. Add to this the issue that, in some countries, it is legal (and convenient) for a Christian to convert to Islam but illegal (or functionally impossible without putting yourself at serious risk) for a Muslim to convert to Christianity, and you can quickly see that the odds do not favor the Arab Christians.

Emigration is another serious issue. With better opportunities elsewhere, the young men often leave. Some return years or decades later, but the problem remains that there are many young women of marriage age who are competing for a shrinking pool of eligible bachelors. “This wouldn’t be a problem” jokes Ala’a (at least I think he was joking; I never really know with this guy…), “if we could all have multiple wives like the Muslims. But you could never put two Christian Arab women under the same roof. They’d kill each other…and probably kill me too in the process.”

All joking aside, perhaps some of these women should learn Mandarin Chinese — China has its own gender imbalance issues, as we’ve written before.

Meanwhile, the numbers continue to get worse, as you can see in the chart below.

In the early 20th century, Christians made up about 20% of the population of the Middle East. As a point of reference, that is roughly equal to the combined percentage of Asians and Hispanics in the United States today. One out of five people walking the street was a Christian Arab. Outside of Lebanon, the percentage is quickly shrinking to the point of irrelevance; across the region it has shrunk to less than 5%.

What are the implications of these trends? There are many, and none are good. The existence of Christian Arabs creates a point of commonality between the West and the Islamic world; without them, the “us vs. them” mentality becomes all the stronger. As Chick states in her article, “As Christians leave the Middle East, some worry they will leave behind an increasingly polarized society. When members of different religions or sects live side by side, they are more likely to see each other as people and not adversaries.”

The Arab Christians also offer a liberalizing influence. Unless forced to veil themselves out of concern for their safety — a growing problem in Egypt, for example — Christian Arab women wear western clothes and would appear indistinguishable from Greek women to most outside observers.

But perhaps the biggest loss would be economic. When Queen Isabel expelled the Muslims and Jews from Spain in the 15th century, the chief beneficiary was the Ottoman Empire. Spain lost some of its best craftsmen and traders, many of whom were Jewish. Until the advent of Turkish nationalism in the late 1800s / early 1900s, the Ottomans benefited handsomely from the skills these refugees brought from Spain and from the skills of their own minorities, mostly Greek Orthodox Christians. When the Ottoman Empire was dismembered after World War I, the rump of the empire became a Turkish nation state — and it sorely missed the commercial ties and professional expertise of its former minority subjects.

Might the same be happening in the Arab world today? You bet. Even as educational standards are improving in the region, it takes years to develop networks and business relationships. “Good ol’ boy” connections, as we call them in the South, require the presence of good ol’ boys — the established power brokers and gatekeepers — and these connections are slowly getting dismantled.

I’m speaking in vague generalities, of course. But I do believe that these demographic trends will make a real difference in the continued development of the region. Unfortunately, this isn’t a testable hypothesis because we can never know what might have been. At the very least, we can consider this one of several significant factors that will affect the future of the Middle East.

 

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 College Admissions Wave: Will the Number of Students Keep Rising Forever?

We’ve written pages on the “College Admissions Wave” Today, we came across some new demographic data from the Pew Research Center.

It is no shock to anyone with college-aged children that college campuses are a lot more crowded these days. Much of the focus in the media has been that a higher percentage of American youths were attending college. We conceded that this was true, but we insisted that the primary diver of the increased demand was not the higher percentage of kids going to school but the shear number of kids in the Echo Boom. (It’s not a bigger piece of the pie, so to speak, but a much bigger pie itself.) We now have some numbers to test this.

Between 1967 and 2008, the number of 18-24-year old enrolled in college more than doubled from 5.1 million to 11.5 million. This is an increase of 6.4 million students, or 125%.

Taking a look at the numbers,

In 1967: 23.4M college aged * 21.7% attendance rate = 5.1M students
In 2008: 23.4M (assuming zero population growth) * 42.4% attendance rate = 9.9M students

So, as it would turn out, 4.8 million of the 6.4 million increase since 1967 was due to increased attendance rates, not demographics. That works out to 75%, with the remaining 25% of the increase due to demographics changes and foreign born students.

The facts speak for themselves; a higher percentage of Americans is going to college than ever before. But can we expect this trend to continue? Let’s consider the facts.Over 1967-2008 time period, the percentage of 18-24-year olds enrolled in college increased from 25.5% to 39.6%. So, roughly 4 in 10 Americans now goes to college. But at what point will this level off?  A quick look at the chart above indicates that it already is leveling off; the steepest section of the graph is from 1973 to 1992. Increases since 1992 have been much less impressive.

We will never have a country in which 100% of the population goes to college, or even 70-80% for that matter. That is unrealistic. But what is realistic? 50%? 60%?

It’s hard to say, but we cannot imagine the number rising to more than half in our lifetime. Many of the factors that led to the increase from 25.5% to 39.6% have already come and gone:

  • The process of “deindustrialization” has been in play since the 1970s. You cannot earn a comfortable wage as a factory worker anymore, so many young men who might have been content to follow their fathers to the GM plant have been forced to pursue other options, which generally involve college education.
  • Meanwhile, women long ago entered the workforce en masse and have become very highly represented in the educated professions. A majority of law school students are now women, for example. Much of the increase in the percentage of Americans who attend college from 1967 until the late 1980s was simply women “catching up” to men in this respect (See Pew’s Appendix, which breaks it down between men and women).

So, with the decline of the male blue collar career path and the mass entry of women into professions that require higher education already baked into the numbers…what would cause a significant increase in college admissions from this point forward?

The transformation of the United States from an industrial economy into a services and information based economy is largely done, and with this transformation complete we believe that demographic trends will become the most important determinant of future college admissions. The numbers point to roughly seven years of declining demand ahead. College administrators, take note.

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 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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