Monthly Archives: April 2016


This is the other half of the problem of lower birth rates offered by Rodney Johnson of Dent Research, an investment advisory service in Delray Beach, Florida.

The reason for fewer births around the globe, particularly since the global downturn, is obvious.  It’s the same reason that families have fewer children when they move into urban areas.

It’s All About Money

There will most likely be an uptick in child birth in China.  But the idea that easing the one-child policy will lead to a boom in births isn’t convincing.  It’s no longer this policy holding families back.  According to Credit Suisse economist Dong Tao:  “The high cost of raising a child is probably China’s new birth control.”  The country’s average income is roughly $5,000 per year.  The cost of raising a child to age 18 is $75,000, or about $4,200 per year.  That doesn’t include college.

In his book Korea: The Impossible Country, Daniel Tudor points out that raising a child there costs the equivalent of $230,000 U.S. (or about $12,700 per year).  The average income is only $20,000 per year.

All of this should sound familiar.

Here in the States, the U.S. Dept. of Agriculture estimates it will cost just under $250,000 to raise a child born today to the age of 18 (not including college).  As we’ve written before, the average cost of daycare for an infant is $927 per month.  Median household income is only $54,000.  Adding an expense of more than $1,000 per month when including food, health care, diapers, and clothing, is prohibitive to say the least!

Young Americans Still Want Kids

Even though young Americans are currently choosing to have fewer kids (if any at all), it’s not that they don’t want children.

According to a 2013 Gallop survey, the desire for children has barely changed over the last two decades.  In 1990, only 4% of Americans said they didn’t want children.  In 2013, the number was 5%.

With a desire for children and the casual attitude toward sex I mentioned earlier, it would seem like the U.S. should have another baby boom underway.  But we don’t.  Just like in China, South Korea, and a host of other countries, money is the issue.

Most Americans (65%) say they don’t have enough money to raise a child.  Another 11% say the state of the economy or the dearth of jobs is why they’re not having children.

Given that families want children but believe they can’t afford them, and governments want these couples to have kids, the obvious answer is for governments to offer financial assistance.  This is exactly what they do, but with limited success.

Even Free Money Isn’t Enough of an Incentive

In the U.S. we give tax credits for dependent children, child care and tuition.  Russia offers a baby bonus of $9,000 for a second or higher-order child, while Australia offers $6,000 per child.  In Germany, a woman can claim up to $35,000 in paid parental leave while caring for a newborn.  France spends roughly 3% of its GDP on benefits for parents.

In Hungary, the government is so desperate for children that it now offers aid before couples have children.  A family that pledges to have at least three children over 10 years can get a grant of 10 million forints (about $35,000) toward the purchase of a home.  A typical house in Hungary costs around $100,000.  In addition, couples pledging to have three kids can apply for a 10 million forint low-interest loan.  That’s a great deal for something that hasn’t even happened.

With the global economy slowing down and the cost of current social programs ratcheting higher, it’s hard to see how any nation will significantly boost what it pays couples to have children.  And yet, that appears to be the long-term solution to solving national budget woes and social funding shortfalls around the world.

Without significant growth driving up tax receipts to use for funding bigger social programs, nations would have to tap another source—taxpayers.  These are the same taxpayers who are already dealing with stagnant wages and higher costs for health care and education, trying to fund their own retirement, and who are realizing that when Junior gets out of college their aging parents will need financial assistance.

In The U.S., It’s Not Just the Money

While a lack of financial security and a difficult economy are obvious headwinds to starting a family, the U.S. has an extra obstacle—changing immigration.

For many years, the main thrust of immigration to the States was from Latin America, and mostly Mexico.  Since the Financial Crisis, the flow of immigrants north has slowed dramatically.  Net migration from Mexico (counting those who return home) has fallen to zero.

And Hispanic migrants have been replaced by Asian migrants, who have a much lower birth rate.

Time Could Change Things

Without a change in social spending, immigration, or the economy, the best we can hope for is that the desire for children—which we know young Americans still have—overcomes the practical issue of cost.

We need for biological clocks to tick louder.  Hopefully couples that didn’t have kids when they were in their 20s will rush to make up for it by having several when they’re older.  This is called the “tempo effect,” and it’s already evident in the data.  The dramatic drop off in births in the U.S. occurred almost entirely in the under-30 set.

Yet, the question remains whether or not enough couples in their 30s and even early 40s will have children so that we can gain ground in the fertility rate.  In this respect, history is not on our side.

The last time the economy went through such a period was the Great Depression.  Having children during the terrible economic times just added to family woes.  Unfortunately, 22% of the women who entered child-bearing age during the 1930s never had kids, compared with the normal rate of around 10%.  The tempo effect might not help us as much as we’d like.

The Most Likely (Depressing) Outcome

In the U.S., the correlation between births and median income is 0.76, which implies a very strong relationship.  This makes sense.  If people make more money, they feel more secure in having children.

What’s interesting is that childless couples don’t have the same immediate need to spend on essentials as those with kids, so they can choose to save.  If they save instead of spend, they hold back the exact economic growth needed to generate more income for workers like themselves, making them less likely to have children.  It becomes a vicious cycle.

Unfortunately the Fed, banking regulators, and the U.S. government have all worked to push out the recovery, just like their counterparts in Europe.

The best approach to the downturn would have been to flush out the weak companies and institutions early, re-price debt and assets at lower levels, and then allow the survivors to compete and grow.  Wages might have dropped lower at first, but they would have resumed an upward trajectory, giving workers confidence to not only spend what they earn and take on credit, but to have kids.

Instead, both U.S. and European regulators allowed hobbled companies and banks to survive, which then spent years cutting costs and holding down wages to repair their balance sheets.  The burden was laid on employees, who’ve now experienced more than half a decade of flat wages, or even falling wages, when we include inflation.  It’s no wonder they aren’t optimistic about their financial futures!

What Won’t Work

It’s possible that Germany’s Angela Merkel was less than altruistic when allowing more than one million Middle Eastern refugees to reach her country last year.  She could have been counting on the flow of mostly young people to stem Germany’s demographic decline.  It’s highly unlikely that such a strategy will work.

The group that entered Germany last year was more than 70% men, and they don’t share a language or social mores with the domestic population.  Germany would have to teach them the language and assimilate them socially before any such program could be called successful.

The French have tried for years with their Algerian population, which already shares the language, as have the Brits with their Pakistani migrants.  So far, it hasn’t worked.

Interestingly, nations wishing to add some demographic heft through immigration policies and show mercy at the same time can look to Canada as an example.  Our neighbor to the north does allow war refugees to migrate, but only women, children, and families.

Looking Ahead

At this point, falling birth rates will hold down economic growth, and populations will shift from young to old.  Without more kids, a global economic rebound is not just around the corner, so traditional growth stocks and investment strategies won’t work.

In keeping with tepid consumer demand and modest growth, this environment is marked by falling interest rates and rising taxes, which is a recipe for a lower standard of living for those who don’t match their investment approach with the economic season.

That’s why it’s so important to review your investment holdings, and make sure they have the best chance to grow in the difficult years ahead.”



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Last week was Thomas Jefferson’s birthday and coupled with the overwhelming popularity of the Broadway musical about Alexander Hamilton, I’ve always been curious about the enmity between these two of our founding fathers.

I read their biographies a long time ago, but I remained a bit puzzled why they were at such odds with each other.  So let’s harken back to the days of old and explore where they came from and what brought them to the point of no return.

Jefferson was a tall man, 6’2”.  He and his wife, Martha, had six children.  He was the principal author of our Declaration of Independence and served as the governor of Virginia.  He became our first Secretary of State in George Washington’s cabinet.  It was here that he and Hamilton first crossed swords.  In 1800, Jefferson became our third president.

His travels to France enamored him of everything French, even their revolution.

Monarchy was something he did not want to see in America and was very concerned that the Federalists would push in that direction.  Because of this anti-monarchy feeling, he was a great proponent of small decentralized federal government.  He opposed adoption of the constitution and preferred keeping the Articles of Confederation in place as is.

He often shunned the limelight and often enlisted others to speak and write about his ideas.  As a leader of the anti-Federalists, he was joined by other prominent American political thinkers; James Monroe, Thomas Payne, Aaron Burr, Samuel Adams and Patrick Henry.

The contrast between Jefferson and Hamilton was electric.  Alexander Hamilton was born on Nevis Island in the Caribbean in 1755.  He came to America to attend Kings College, now Columbia University.  He was 5’7” tall and had eight children with his socialite wife, Elizabeth.

He enjoyed a meteoric rise in the Continental Army and became Aide de Camp to General George Washington.  He was bright and outspoken about all the issues of the day.

Hamilton was a great admirer of the English form of government.  He wanted a strong central government for the U.S. and was one of the principal authors of the Federalist Papers.  He was our first Secretary of the Treasury and essentially created the financial system that financed our government and served our economy.

He successfully argued that the implied powers of the Constitution provided the legal authority to fund the national debt and create the government-backed Bank of the United States.  His programs were primarily funded by taxes on imports.

As President Washington made several attempts, to no avail, to try to avoid a continuing war between Jefferson and Hamilton.

The Federalist Papers were a series of essays published in N.Y. newspapers in 1787-88 to explain and argue for the adoption of the proposed Constitution.  They came about partly in response to a group of opposing essays critical of the new Constitution.

The writer of the Federalist Papers was Publius, later revealed to be a group pen name for Hamilton, John Jay and James Madison.

Both men dallied a bit from their public and married postures.  Jefferson had a long-running affair with one of his slaves, Sally Hennings, after Martha died.  Hamilton had a short liaison with a married woman named Maria Reynolds.

The Constitution survived, and Jefferson survived.  Unfortunately, Hamilton did not, killed in a dual with Aaron Burr on July 12, 1804.  He was only 49 years old.

We owe a lot to both men who made significant contributions to our founding and historical growth and success.



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For the fifth year in a row, travelers have catapulted New York City into the top spot for most popular U.S. destination, according to TripAdvisor’s latest Traveler’s Choice awards for destinations.

For the first time, the top international destination was Marrakesh, Morocco, which moved up five spots from last year.  Marrakesh overtook last year’s winner, Istanbul.

TripAdvisor’s winners were chosen using an algorithm that considered the quantity and quality of reviews and ratings for hotels, restaurants and attractions over a 12-month period.

The most popular U.S. destinations, according to TripAdvisor:

  1. New York, NY
  2. Chicago, IL
  3. Charleston, SC
  4. Las Vegas, NV
  5. Seattle, WA
  6. San Francisco, CA
  7. Washington, D.C.
  8. New Orleans, LA
  9. Palm Springs, CA
  10. San Diego, CA
  11. Louis, MO
  12. Sedona, AZ
  13. Honolulu, HI
  14. Miami Beach, FL
  15. Branson, MO

I’ve been fortunate to see 14 out of the 15.

And here’s the most popular international destinations:

  1. Marrakesh, Morocco
  2. Siem Reap, Cambodia
  3. Istanbul, Turkey
  4. Hanoi, Vietnam
  5. Prague, Czech Republic
  6. London, United Kingdon
  7. Rome, Italy
  8. Buenos Aires, Argentina
  9. Paris, France
  10. Capetown, South Africa
  11. New York City, United States
  12. Zermatt, Switzerland
  13. Barcelona, Spain
  14. Corum, Turkey
  15. Ubud, Indonesia
  16. Cusco, Peru
  17. Petersburg, Russia
  18. Bangkok, Thailand
  19. Katmandu, Nepal
  20. Athens, Greece
  21. Budapest, Hungary
  22. Queenstown, New Zealand
  23. Hong Kong, China
  24. Dubai, United Arab Emirates
  25. Sydney, Australia

I made 22 out of the 25 and I’m still trying.  How about you?  How many have you been to?


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The following is an interesting and somewhat humorous commentary by Randy Johnson of Dent Research, an investment advisory firm in Delray Beach, Florida.

“We’re in the midst of a global disconnect.  Judging by what I hear on the radio and see on television, people are having sex every minute of the day, or at least they’re thinking about it.  We’re no longer satisfied with innuendo and flirting.  Courting, as a term and an activity, is dead.  If art is an imitation of life, then we’re all just seconds away from the next “hookup.”

Except, of course, we’re not.  We can’t be.  If it were true, we’d have baby explosions around the world, even with contraceptives.

Nowhere is this dichotomy more evident than in Japan.  The island nation has the second highest per capita spending on pornography.  It creates more porn movies than the U.S…yet its birthrate has hovered around 1.3 births per woman of child-bearing age for over a decade.  Japan’s population is shrinking, and has been since the mid-2000s.  While they consume a lot of sex-based media, they’re not following through.

The problem is so bad that by age 34, 26.1% of men and 23.8% of women have had no sexual experience.  This isn’t surprising, considering that over 40% of Japanese men in their 20s have never dated anyone…ever.  And the problem doesn’t go away once a couple gets hitched; 44.6% of married couples say they are in sexless relationships.

We don’t have this extreme of a problem in the United States yet, but we’ve moving in that direction.  Unfortunately, so far, it’s a problem with no solution.

While 30 years ago we were worried about too many people on the planet consuming precious resources, today we have the opposite.  Faced with the prospect of declining populations, leaders of developed countries around the world realize they’re facing nothing short of an economic implosion.  Without kids, young adults aren’t forced to spend.  Without rising adults, workforce populations decline.  Without tax receipts, governments can’t pay their bills, especially for social spending like benefits for the aging population.  Governments from Asia to Europe facing this situation haven’t come up with a successful solution.

Now the U.S. appears to be facing the same dilemma, as our birth rates fall and young adults push out family formation.  While the examples from other countries are bleak, there’s reason to be hopeful that, at least in the U.S., things might turn around.  If they do, then we could be in for a baby boomlet, but only time will tell.

The Problem Hits Close to Home

I’m not the first person staring down 50-year-olds to think that the younger generation has lost its sense of propriety.  It’s a rite of passage in middle age to rant about those “darn kids” and the trash they listen to and watch.  I’m feeling this in spades.

The current social scene has passed me by.  I find myself alternately surprised and appalled at some of the lyrics on the radio and some of the original content from online streaming services.  When Netflix, Amazon, and other streaming companies develop original content, they aren’t bound by the guidelines that constrain typical cable channels.  They’re free to include graphic sex scenes anywhere and everywhere, even when they aren’t important to the storyline.  And don’t get me started on the Internet.

Yet, since 2007, the U.S. birthrate has plummeted.  From 2007 to 2013, the number of births in the U.S. fell by almost 400,000, from 4.32 million to 3.93 million.  That’s a 9% drop.

Births dropped even though we added millions more potential moms to the ranks as millennials joined the adult world.  The U.S. total fertility rate (TFR) fell from 2.12 to 1.86.  The rate must be at least 2.1 for a population to remain at its current size (replacing each man and woman, plus a little bit more for mortality).

We went from barely above replacement level to well below, and have stayed there for more than half a decade.  The TFR inched up almost imperceptibly in 2014, but that isn’t much help.

In the face of an economic downturn, this makes sense.  Having fewer children or no children at all is an immediate economic benefit to a society.  Not only do young adults escape the cost of raising children, but accumulated funds can be spent on immediately productive assets such as steel mills and factories.  Children eventually add to an economy when they become young adults, but until then the consume resources.

This is exactly why, after WWII, the Japanese government asked its citizens to stop having children after two.  Officials wanted to keep their population size steady.  They wanted to use all available resources to rebuild the nation’s infrastructure.  The government went so far as to recommend that women with two children who became pregnant should have an abortion.

On the flip side, the long-term effects of too few births can be devastating.

With a shrinking number of children, societies can run short of the consumers and workers they need to keep their economies functioning.  Virtually every developed nation on the planet relies on current workers to pay for benefits to retirees, which can make matters worse.

When the population skews to retirees, you have a smaller cohort of workers shouldering a larger financial burden.  The falling numbers of consumers means less domestic commerce, which drives down sales tax and value-added tax receipts.  This provides government entities less revenue for social spending.  It also puts even more economic pressure on the working class, making them less likely to take on the cost of children, exacerbating an already bad situation.

This problem has been on display in Japan for more than a decade, but is now spreading across the developed world like wildfire.

The Developed World’s Biggest Problem Right Now

I mentioned earlier that falling birth rates is a global phenomenon, particularly in developed nations.  A quick glance at the total fertility rates of selected countries from 2011 through 2015 makes it clear that we don’t have enough children.

France has the highest rate in the group at 2.0, but it’s still not enough to replace their population.  Italy and Germany match Japan at 1.4, while Spain and Greece fall near the bottom at 1.3.  The worst is South Korea at a dismal 1.2, or almost half of what they need to simply keep their population size constant!  Oddly, South Korea is the nation with the largest per-capita spending on porn.

Even among developing nations, the birth rates have recently fallen.  Russia’s TFR is 1.7, which matches the rate in China.  Mexico barely makes it over the replacement rate at 2.3.

As a nation’s economy moves from agriculture to industrial production, and populations move from rural to urban living, it’s easy to see how children change from assets as extra hands in the fields to burdens as extra mouths at the table in an apartment.  Falling birth rates go hand-in-hand with the economic transition to developed-nation status.

But then what?

Birth rates can be too low.  The drop in child bearing can be so dramatic that a nation can’t recover.  No one knows where that point is, but the question has many government officials quaking in their boots because the absolute number of new births required to reverse the trend is breathtaking.

France needs just a few more kids, while South Korea must almost double their birth rate simply to keep their population from falling further.

But even if each country were able to magically increase its birth rate to these levels tomorrow, it would only stop their eventual population declines.  It would do nothing to make up for the previous years of too few births.

What’s a country to do?

Motivating Romance and Ovulation Discounts

Around the world, governments are trying their best to motivate couples to get busy.   The Singapore-based Strait Times newspaper provided couples with a list of the best places to go “parking.”  It went on to suggest covering the windows with the newspaper itself, which is an interesting way of selling more copies.

The Singaporean government commissioned a rap song calling on citizens to “do it for their country.”

Several years ago, Russian President Vladimir Putin called on couples to conceive in September so that they would have babies on Russia Day the following June.

South Korea and Japan both run state-sponsored dating agencies.

Probably the funniest approach to the problem comes from the Danish travel agency Spies Travel.  The company ran a television commercial called, “Do it for Denmark!”  It starts by identifying the problem of too few children, and then recommends a solution.

Apparently Danes have 46% more sex while on holiday than during regular days at home (I don’t know how the travel agency would know such a thing!).  So clearly the solution is to get people to travel.

Unfortunately, whether it’s a government program or a gag by a travel agency, no program has effectively motivated couples to have more children.  This is the case even in countries where additional kids were once restricted…like China.

Lessons from China

Over the past 35 years, China has regulated its population through its infamous one-child policy.  Generally couples had to pay a penalty tax for additional children.  Rural families could have two children without a tax.  Rich families would take a long holiday to a foreign nation and return with additional children born abroad.  But overall, families were held to the one-child policy from 1979 through 2015.

The government estimates this policy resulted in 400 million fewer births in the country (roughly one-third of the current population).  It allowed the Red Dragon to focus its energy and resources on economic output.  Now that its growth is solidified, government officials want families to have more kids, so the government eased the policy and now allows two children per family.

Many people forecast a baby boom in China—one particularly well-known newsletter publisher has even gone so far as to tell his subscribers to invest in this coming boom—as families quickly take advantage of the relaxed policy.  I’m not convinced.*

The Chinese government has relaxed birth restrictions before.  In late 2013, the government allowed couples who were both only children to have an additional child.  Officials expected this to add two million births per year; but as of September 2015, only 1.76 million permits for additional children, about 850 thousand per year, had been requested.  Those were simply requests for permission.  There was no official count of how many additional births actually occurred.

More on the subject in Part II coming up on 4-20-16.


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