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The Arab Spring and Demographics

In January, the world watched in shock as a 26-year-old Tunisian fruit vendor lit himself on fire to protest the regime of Zine El Abidine Ben Ali and sparked a revolution that spread across the Middle East like wildfire—today even threatening governments thought to be untouchable, like the Baathist Assad Regime in Syria.

Shortly after the fall of Tunisia’s strongman, Egypt’s idealistic youth toppled the 30-year dictatorship of Hosni Mubarak with a peaceful show of resolve. With the army now in control of the country—and promising free elections—it remains to be seen how events will ultimately unfold. Jeffersonian democracy may spontaneously bloom in the desert, or—more likely—an authoritarian regime not materially different from that of Mubarak might emerge after a period of instability. Only time will tell, but we certainly wish the best for the Egyptian people in this exciting period in their history.

Today we’re going to take a look at the demographics of Egypt and of some of the country’s neighbors in the Middle East. Some of the conclusions drawn will surprise you. First, much is made of the fact that Egypt is a “young country” with the majority of its population younger than 25. But what the media doesn’t understand is that Egypt is actually much older today than it was just ten years ago and that the country is aging rapidly.

Much is also made of the fact that the Arab and Muslim world has high birthrates compared to the United States and Europe; but this too is changing. Egypt’s current birthrate, though still relatively high by world standards, is less than half the rate of the early 1990s.

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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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How to Choose the Right Dividend ETF

The stock market hasn’t returned a single red cent in over twelve years, as measured by the S&P 500. Twelve years is a long time to go without earning a return on your investment, particularly if you are close to retirement.

With the boom years of the 1980s and 1990s now a distant memory, it is not shocking to see investors losing faith in the cult of capital gains and gravitating instead to dividend-paying stocks and ETFs. In a world in which paper gains can be ephemeral, it’s good to be paid in cold, hard cash.

In many ways, this is simply a return to the basics of investing. Historically, before federal capital gains taxes and Modern Portfolio Theory shifted the industry to a focus on growth, dividends were the primary source of investor returns (see Figure 1), and over the past twelve years dividends have been the only source of investor returns.
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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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John Law: Rake, Murderer, and Father of Central Banking

I commented in a previous article that “if you think that Fed Chairman Ben Bernanke is unpopular, consider the tragic case of Takahashi Korekiyo, who served as Bank of Japan governor from 1911-1913 and as finance minister and prime minister in the 1920s and 1930s.”

Mr. Takahashi helped to pull Japan out of the Great Depression with aggressive monetary stimulus (or “quantitative easing,” in the popular jargon of today) and deficit spending. Unfortunately, like a man who joins the mafia, he found that he couldn’t get out. The Japanese economy had become dependent on stimulus, and when Mr. Takahashi finally decided to risk it by tightening monetary policy and cutting government spending, he was assassinated by a group of rogue army officers.

Ben Bernanke is at little risk of meeting such a fate, though there are certainly plenty in Congress who would love to assassinate his career. If certain members of the Tea Party had their way, the Chairman might meet the fate of John Law, the Scottish adventurer who, as France’s first central banker, became the most powerful man in international finance—and the wealthiest man in the world—before having to flee penniless into exile and obscurity.

Law presided over one of the great financial spectacles in history: the Mississippi Land Scheme, which was aided and abetted by the creation of the first modern central bank in Europe, the French Banque Generale (later re-christened the Banque Royale). Law was an interesting character; a gentleman gambler with a taste for wealth, wine, women and power. His financial career began in the gaming halls of Europe after escaping a death sentence in England for killing a man in 1694, allegedly over the affections of a woman.

One might ask, how did this murdering degenerate come to control the financial destiny of France, then the most powerful nation in Europe? It was a long, circuitous path.
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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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What to Read: The Best Financial Newspapers and Magazines

I’m often asked where I get my investment ideas and what sources I read to keep abreast of financial news.  The fact is, you can’t read everything that comes across your desk; there is simply not enough time in the day to get through it all.  You have to prioritize and organize your reading list, or you’ll waste your entire working day reading information that is irrelevant to your investing.  Let us not forget that time is money!

I created the list below to highlight some of my regular news sources.  I hope you find them as valuable as I have in my investing career.

If I could only read one publication, it would without a doubt be the Financial Times. The FT is the premier global financial newspaper for serious investors, and it covers the entire globe.  Most newspapers, even the good ones, are at least half full of trivial fluff and local interest.  Not the FT.

I started reading the FT when I was a graduate student at the London School of Economics, and I haven’t stopped reading it since.

If you want to know what is happening in the world, laid out in a clear, concise manner, you need to be reading the Financial Times.

For American financial news, it’s hard to beat The Wall Street Journal.  I must admit, I am very partial to the Financial Times, but I do consider the Wall Street Journal a worthwhile read as well.  In a typical morning, I read the FT cover-to-cover, whereas I skim the Journal for any relevant points that the FT might have missed.

Barron’s is my favorite weekly financial publication.  Much of the news will be repeated from daily sources like the FT and the Journal, but Barron’s has a lot of original reporting that makes it a staple part of my weekly reading.

Barron’s routinely polls money managers about their favorite sectors, and this is a contrarian indicator I use to watch for herding behavior.  I also find the annual Barron’s Round Table to be a good source for investment ideas, and I enjoy the interviews that the magazine routinely does with fund managers.

The magazine is also busting at the seams with financial statistics.  Barron’s is probably the best source I’ve found for data on closed-end funds.

My only complaint with Barron’s is that its overall tone tends to be quite bearish, but this is also a source of credibility.  If the editors were a bunch of glassy-eyed optimists, they wouldn’t be adding a lot of value.

If you don’t have time to read the Financial Times daily (or even if you do), reading The Economist weekly is the next best thing.

I like The Economist for two primary reasons:

1. It is an excellent source for global news and analysis.

2. I find value in seeing American domestic news through the eyes of a foreign publication.

This magazine is certainly worth including in your weekly reading routine.

 

 

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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