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Iran Now Has a Lower Birthrate Than France: Here’s the Takeaway

Here’s a little fact that will blow your mind. In Iran, you can get married for an hour and then divorced, no strings attached. It’s the sigheh, or “temporary marriage” (sometimes called the “pleasure marriage.”)

In a sigheh arrangement, the duration of the marriage and the dowry are specified in advance, and once the time period elapses, be it an hour or a year, both parties are free to go their separate ways.

I couldn’t make this stuff up if I wanted to. In theocratic, hardline Iran, there is a religiously-sanctioned hookup culture.

Based on shifting demographic trends in Iran, it appears that Iranians have gotten a little too comfortable with temporary marriage and have decided to forgo the traditional kind.

Last week, I wrote about China’s pending mother shortage and what it means for China’s economy in the decades ahead. Along those same lines, today I’m going to turn a popular misconception about Iran on its head.

There is a widespread belief in the West that we’re being “outbred”  by unstable countries that are hotbeds for terrorism, particularly in the Islamic world. To an extent, this is true. The average woman in Afghanistan, Iraq and Yemen, to pick three high-profile examples, can expect to have 5.1, 4.1 and 4.2 children in their respective lifetimes.

Iran had similarly high birthrates…before the Islamic revolution of 1979.

Iran

Ironically, Iran had much higher birthrates before the revolution, when it was officially a western-allied nation and women walked the streets freely with their heads uncovered. But just six years after the mullahs took over, the fertility rate collapsed. By 2005, it had fallen below the population replacement rate.

Today, at 1.9 children per women, the Iranian fertility rate is equal to that of the U.S. and actually lower than that of France!

Iran is changing. Women make up more than 60% of college students. With higher levels of female education, the average age of marriage and first childbirth rises and the smaller the average family size gets.  According to the Alliance Center for Iranian Studies, the average age of marriage today is between 25 and 35 among men, and between 24 and 30 among women.

Divorce has a way of putting the brakes on family size, and about one out of three marriages in Tehran now end in divorce. For better or worse, Iran is starting to look a lot more “Western,” at least when it comes to family life.

What’s the takeaway here?

Iran won’t be a rogue state forever. We probably won’t see real political change while Ayatollah Khamenei, Iran’s supreme leader, is alive and kicking. But he’s also 75 years old and won’t be around forever. Change will come, and a lot sooner than most people realize.

Will the mullahs give up power without a fight? Probably not.  And Iran may never have a full-blown revolution and regime change. But as Iranian society changes, I expect the government to at least subtly tone down its anti-western rants and to start behaving like a “normal” country.

This post first appeared on Economy & Markets.

Charles Lewis Sizemore, CFA, is chief investment officer of the investment firm Sizemore Capital Management and the author of the Sizemore Insights blog

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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More Food for Thought on Valentines Day: Love and Sex in Japan

In Economy & Markets last month, Harry Dent had some interesting comments on marriage and family formation in Japan and what it means for the Japanese economy. Here’s an excerpt:

It’s one thing to naturally have fewer kids as a country urbanizes and gets more wealthy. It costs more to raise and educate kids in such a society and so couples naturally choose to have fewer kids and educate them better. Every developed country has seen such trends, as have the urban populations of emerging countries.

But there’s something different in Japan, something downright scary. They not only have one of the lowest average number of children per woman of 1.41 vs. a 2.1 replacement rate, but single and married people increasingly have no interest in sex or romantic relationships…

Here are some key findings:

1. 45% of women and 25% of men 16 to 24 are “not interested in or despised sexual contact.”
2. More than 49% of Japanese citizens are single.
3. 40% of unmarried men and 61% of unmarried women age 18 to 34 are not in any kind of romantic relationship.
4. 23% of women and 27% of men say “they are not interested in any kind of romantic relationship.”
5. 39% of Japanese women and 36% of men of child-bearing age, 18 to 34, have never had sex.
6. Women in their early 20s have a 25% chance of never getting married and a 40% chance of never having kids.

Japanese laws and social customs make it extremely difficult for women to have a career and a family. Women who get pregnant, or even just marry, are generally expected to quit work and become a housewife…

On top of this extraordinarily high lack of interest in sex and having families, the Japanese live longer than any other wealthy country in the world, with a life expectancy of 84 vs. 79 in the U.S. and 80 to 81 in most of Europe.

That means they retire longer and require more support from a dwindling workforce… By 2050, that 48 million workforce will be supporting 37 million elderly aged 65 and over.

If this isn’t economic suicide, or Hara-kiri, I don’t know what is.

 

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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Food for Thought on Valentines Day: Chinese Couples Will Be Making a LOT Fewer Babies

Here’s a little something to think about with Valentine’s Day coming up: Chinese couples will be making a lot fewer babies in the years ahead. And this has major implications for China’s future growth.

A China baby bust might sound counterintuitive to anyone who follows China, as the government announced in 2013 that it would be relaxing the One Child Policy. Most China watchers assumed this would lead to a Chinese baby boom. But this ignores the very large demographic elephant in the room: Babies require mothers. And after three decades of the One Child Policy, China is about to have a major shortage of potential mothers.

Take a look at the chart, which forecasts the population of Chinese women by age bracket using demographic data from the United Nations. China’s population of women of prime childbearing age (25-29) goes into steep decline this year and doesn’t significantly recover…ever.

Chinese Women by Age Cohort

Average age of marriage and first childbirth are rising worldwide, and as a general rule the more developed a country becomes (and the more educated its women become) the higher the age of marriage and first childbirth. So, let’s assume that China’s women, like many Western women, are postponing motherhood until their early 30s. Even then, China has a major problem. Its population of women aged 30-34 goes into steep decline starting in 2020.

Conception is still possible into the late 30s and 40s, of course. But it gets far more difficult and, realistically, it limits family size. You can’t realistically have a large family if you’re getting started in your late 30s. And in any event, the population of women aged 35-39 goes into steep decline ten years from now.

Let’s say that Chinese women, aided with new technology, somehow rewrite the laws of human anatomy and make large families possible into early middle age. Even then, China still has a major problem: the country has evolved with small families as the norm and costs have risen accordingly. Living costs have risen in the cities to the point that large families are not economically viable for the vast majority of Chinese households, and urban apartments are not big enough to accommodate them.

This is a major problem for China and for any Western company that has made large investments in Chinese growth. Children are the future.  You need them to pay the taxes and man the factories of tomorrow. More critically, in the age of modern consumer capitalism, you need them swiping the credit cards and buying the homes of tomorrow. This is particularly critical for China given its government’s stated goal of reorienting its economy away from exports and towards domestic consumption.

Is mass immigration of young women the answer? Well, that sounds good, at least to the red-blooded young men in the room. But the math doesn’t quite work out. China’s population of 20-24-year-old women shrinks by about 30 million over the next ten years. Where, exactly, would China find 30 million blushing brides willing to immigrate? To put that number in perspective, that’s bigger than the entire female population of South Korea, including everyone from newborn baby girls to elderly women.

Let’s just say that Chinese pediatricians are looking at lean times ahead.

This piece first appeared on Economy & Markets.

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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Milton Friedman was Wrong. Inflation is Not Always a Monetary Phenomenon

I have a lot of respect for the late Milton Friedman. I really do. His unapologetic defense of the free market was–and still is–a breath of fresh air amidst the constant drone of calls for the government to “do something” to fix all of our problems, real or imagined.

But on the subject of inflation–the subject on which Friedman is most often quoted–he was dead wrong. Inflation is not “always and everywhere a monetary phenomenon.” Other factors–such as demographic change–can and do overwhelm central bank monetary policy when they reach extremes. I tackled this subject two years ago in a piece that tied Japan’s chronic deflation to its aging and shrinking population.

I’m not the only voice in the wilderness. Harry Dent has made the same basic demographic arguments for over twenty years, and his views have gone a long way to shaping my own here. And now, the Fed appears to be coming around. Earlier this year, the Richmond Fed published a piece that asks: Will the Graying of America Change Monetary Policy?

Here is an excerpt:

Despite the certainty of the oncoming demographic change, little is known about how it is likely to affect the Fed’s policy tools. Some policymakers and observers have expressed concern, however, that the Fed’s ability to stimulate the economy may decline for demographic reasons, if it hasn’t already done so. For example, New York Fed President William Dudley suggested in a 2012 speech that “demographic factors have played a role in restraining the recovery,” [emphasis mine] in part because spending by older Americans is “less likely to be easily stimulated by monetary policy.”

It’s called “pushing on a string,” and it’s something I addressed recently in an article on secular stagnation. Keeping interest rates artificially suppressed will not encourage older Americans to buy more on credit. In retirement, most of us trade down to smaller homes rather than trade up. We also drive less and thus replace our cars less often. And we already own all of the big-ticket items that consumers generally buy on credit, such as furniture and appliances. So, the older a society becomes, the less effective monetary policy is in spurring consumption.

Need evidence? Look east to Japan. The Bank of Japan has had some of the loosest monetary policy in the world for the better part of two decades, and they stepped it up several notches recently with an expansion of their quantitative easing program in October. A program which was, by the way, already the largest in the world. Thus far, it’s all been for naught. Japan is officially in recession again.

So, what does the Richmond Fed see going forward? In short, the Fed will get a lot less bang for its buck with traditional monetary policy. The Fed may be forced to make “bigger interest rate changes for the same amount of stimulus or tightening it wishes to apply to the economy.”  Or it could be forced to revisit large-scale bond-buying (i.e. “quantitative easing”) programs again. The Fed wrapped up “QE Infinity” in October.

I’ve been talking in generalities. Let’s drill down to some real numbers. The Richmond Fed continues,

It’s challenging to reach firm empirical conclusions in this area because demographic change is slow. One such effort, by Imam of the IMF, studied the effect of monetary policy shocks on inflation and unemployment in the United States, Canada, Japan, the United Kingdom, and Germany and found that their effect has decreased over time. Imam further looked at whether this effect was associated with the timing of the aging of those societies and found “quite a strong negative long-run effect of the aging of the population on the effectiveness of monetary policy…” He determined that a 1 percentage point increase in the old-age dependency ratio reduces the effect of such an interest-rate change on inflation by 0.1 percentage point and its effect on the unemployment rate by 0.35 percentage point.

The Census Bureau estimates that the old-age dependency ratio in the United States will rise by 14 percentage points from 2010 to 2030. If Imam’s estimates and the Census Bureau’s estimates were to hold, they would imply a 1.4 percentage point drop in the Fed’s ability to affect inflation and a 4.9 percentage point drop in its ability to affect unemployment. Over the course of a 20-year period, such a change might be perceived as modest from one year to another, but cumulatively it would amount to a strong negative effect indeed.

I should also point out that all of this assumes we’re in a “normal” interest rate environment. The target Fed funds rate is still at 0%, and the 10-year Treasury yields 2.2%. If we were to follow Europe and Japan into another recession–even a mild one–the Fed has almost nothing in the way of policy tools to draw on. Pushing longer term yields from 2.2% to, say, 1.0% just isn’t going to make that big of a difference.

 

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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Want an Explanation for Secular Stagnation? Try Demographics.

The Federal Reserve can lower interest rates to zero, or even–as the European Central Bank has done–into negative territory. But it can’t make lenders lend or would-be borrowers borrow if they don’t want to. And it certainly can’t make a shopper open their wallet and spend if they’re more inclined to save.

Economist John Maynard Keynes is often credited for comparing these limits of monetary policy to “pushing on a string,” but the term actually predates him. Congressman T. Alan Goldsborough used the term during the congressional hearings on the Banking Act of 1935.

At any rate, it is a good metaphor. And it’s the problem facing the United States, Europe, Japan and even China. The Fed’s quantitative easing (“QE”) programs have run their course–at least for now–and America is slowly moving towards more “normal” monetary policy. Whether or not QE worked in the U.S. is a matter of debate. My view is that is was wildly successful is stoking a bubble in the stock market and in giving homeowners a refinancing windfall, but not much else. Credit growth is still very weak, and consumers are not as eager as to spend as they were before the 2008 meltdown. But while the U.S. has pulled back from its QE excesses, Japan and Europe are just getting started, and China is getting more creative as well. Thus far, none of this has amounted to much more than pushing on a string.

The Economist recently suggested that demographics were the cause of this secular stagnation.

I agree. Years of  working with Harry Dent taught me that a person’s age is the single biggest contributing factor in their spending decisions. Advertizers have understood this since the dawn of mass consumerism. You’re a lot more likely to see commercials for Viagra or life insurance during a baseball game than you are during a Twilight movie. But economists tend to ignore the role of demographics, focusing instead on big “macro levers” like interest rates and government spending.

Or at least they do today.  But during the Great Depression, the role of demographics was taken seriously. As The Economist writes,

In the facing recession and a possible drift into deflation,late 1930s economists trying to explain how a depression could drag on for nearly a decade wondered if the problem was a shortage of people. “A change-over from an increasing to a declining population may be very disastrous,” said John Maynard Keynes in 1937. The following year another prominent economist, Alvin Hansen, fretted that America was running out of people, territory and new ideas. The result, he said, was “secular stagnation—sick recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment.”

Sound familiar? It should. Japan has been living this nightmare scenario for the past two decades. As its population has aged and shrunk, its economy has stagnated. And the aging of America’s baby boomers means that we’re facing a lesser decree of Japan’s experience here.

So, how do demographic trends affect growth? As The Economist continues, “An aging population could hold down growth and interest rates through several channels. The most direct is through the supply of labour. An economy’s potential output depends on the number of workers and their productivity.”

Economists tend to put the most weight on this first factor, though it is the one I find the least important. Labor can be replaced with technology. This has been the case since the Industrial Revolution, but information technology and robotics are making it ever more true with every passing day. Labor shortages simply spur more automation as businesses look to cut costs.

Our jobs can be replaced, in some way or another, by robots or computers.  But our consumer spending can’t. And that brings us to the second point. As The Economist continues, “The size and age of the population also influences how many customers and workers businesses can tap, and so how much they will invest. Keynes and Hansen worried that a falling population would need fewer of the products American factories made.”

This is where modern economics really misses the point. Sure, you can boost output by boosting the labor supply. Put every man, woman and child to work on 18 hour shifts, and you can send production through the roof. But if underlying demand is not sufficient to absorb the new supply, prices fall and eliminate profits.  Keynes and Hansen pointing this out when mulling over population size. Harry Dent took it a major step further by considering the age of the population. But the key takeaway here is that an aging an shrinking population will consume less…which means that boosting production will only cause price deflation.

And finally, “The third means by which demography can influence growth and interest rates is through saving. Individuals typically borrow heavily in early adulthood to pay for education, a house and babies, save heavily from middle age onwards, and spend those savings in retirement.”

Want an explanation for the low bond yields on offer across the globe? A fair bit of it can be explained by baby boomers aggressively saving and hunting for yield. As boomers pile into income-focused investments, they push yields down.

How does this end?

Watch Japan to find out. As Japan’s elderly start to spend down the colossal savings they’ve accumulated, it will eventually push up bond yields. Of course, the Bank of Japan is aggressively suppressing yields with the biggest QE program in history. But this has caused the value of the yen to plummet, which in turn has caused the prices of imports to rise. None of us can say with certainty how this will end because it’s never been seen before. But my bet is that Japan’s chronic deflation reverses into outright hyperinflationary collapse.

 

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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