Three trends for your retirement portfolio
How to invest for the emerging global middle class
Dec. 7, 2012, 7:01 a.m. EST
new
Building a portfolio for retirement requires a radar system that reveals
not just the blips on the screen that are nearby, but those that might
be off the screen.
Or at least so says intelligence analyst and former journalist Herb
Meyer, who is all about radar systems that allow you to see as far into
the future as possible. And today, Meyer’s radar system is suggesting
that there’s a world of investment opportunity out there given three
very big demographic, macroeconomic, societal changes taking place.
Now in the interest of full and fair disclosure, Meyer is not your
typical investment analyst. Instead, Meyer’s claim to fame is that he’s
ex-CIA from the Reagan Administration and now author of several books
including “Real-Word Intelligence.”
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And what he likes to do these days is do what he used to do for
President Reagan: Paint a picture of the world that’s out there in front
of us. “Not what you can see outside your windshield,” Meyer said in a
speech in Boston (many weeks prior to the current conflict in Israel and
Gaza). “But what you can see if you look down at your radar screen, the
one further ahead.”
The Arab Spring
The first thing that Meyer sees on his radar screen today is the violent
conflicts and political transformations in the Middle East. “The
Mideast is on fire,” Meyer said at the time. “And we need to see where
this is going.”
And the best way to see where you are going, he said, is to know where
you are and how you got there. To Meyer, that means going back in time
to the end of the 17th Century in when “life was terrible.” Life spans
were short, hunger and starvation was widespread, people were illiterate
and uneducated. Nothing changed back then. “Tomorrow was the same as
yesterday,” he said.
The modern world, by contrast, is very different. Life spans are longer,
people are educated, travel is common, change is constant, and even
though income varies widely, few are starving. “Do you realize what a
human achievement that is?,” Meyer said. “It’s so extraordinary that
today we are told that the greatest health problem faced by poor people
is obesity.”
Western Civilization’s transition to the modern world wasn’t smooth, and
we should expect the same as countries in the Middle East transition to
the modern world as well. “When you look at the Islamic world today you
are looking at a 1.5 billion people beginning to make the journey we
began more than 300 years ago,” said Meyer. “And what we keep saying to
them is ‘Can’t you guys do this by next Thursday?’”
Obviously, changes can’t be made that quickly, the social and political
struggles will continue. When you look at many countries in the Middle
East today, you are watching people beginning to write the code for a
new world order. “It’s one of the most extraordinary events in world
history,” said Meyer. “And you are watching it happen. And it only just
started.”
Emergence of global middle class
The second big blip on Meyer’s radar screen is this: “The world is
emerging from poverty, fast,” said Meyer. By 1990, two billion human
beings had crossed the line out of poverty. Since then another 500
million have crossed. And, right now, somewhere between 50 million to
100 million cross the line out of poverty each year, Meyer said.
“And if we can sustain this trend,” he said, “it means that within your
lifetime, certainly within your children’s lifetimes, the world will
cross a line that’s never been crossed before. We’ll be out of poverty.
An overwhelming majority of human beings will no longer be poor. And
that will be the greatest moment in human history and you will live to
see it.”
Why is it happening? “All over the world, governments are now putting in
place the free-market mechanisms to pull their populations out of
poverty,” he said. And the result is the most stunning development of
our lifetime—the emergence of a global middle class. This is biggest
underreported news story in the world.”
This is good for several reasons, one of which is this: “People like us don’t go to war with people like us,” he said.
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We’ve stopped breeding
The third blip on his radar screen is this: If you want to sustain a
country’s population, the birthrate has to be 2.1 per woman. But today,
in Western Europe, the birthrate 1.5, 30% below the sustainable rate, he
said. “That means, in 30 years from now, there will be between 70
million to 80 million fewer Europeans alive than there are today,” Meyer
said.
Why has this happened? Fewer married couples want children. Fewer people
are getting married. And, fewer adults want to work. “What you are
looking at in Europe is a demographic death spiral,” said Meyer, who
also noted that the same thing is happening in Japan where the birthrate
is 1.3.
As in Western Europe, there won't be enough young people to replace the
older generation in Japan. “Japan is aging so fast, by 2020, one out of
every five Japanese citizens will be over the age of 70 and no one can
figure out how to run modern society with one out five people over the
age of 70,” Meyer said. “Japan is committing national suicide.”
As for the U.S., two years ago, the birthrate was 2.1. Today, the
birthrate is slightly below 2.1 according to Meyer. (The CIA’s estimate
for the U.S. for 2012 is 2.06.)
The country with the highest birthrate in the Western world is Israel,
which the CIA puts at 2.7, which means that 30 years from now there will
be more young people than older people.
In the Muslim world, the birthrate is above 2.1, but the numbers are
starting to decline, especially in Turkey (2.1) and Iran (1.9), he said.
“For all practical purposes, Iran doesn’t have another generation,” he
said.
In general, Meyer said, “We are getting old. It’s happening at different
rates in different places. Here in the U.S., the elderly-dependency
ratio—the percentage of the population that is old—will double, from 19%
to 39%, over the next 20 years.”
And by 2045, for the first time in history, the number of humans living
over the age of 55 will be larger than the number of humans under the
age of 15, he said. “And that’s a done deal. Nothing can be done to stop
that from happening,” Meyer said. “You are living in a world where
there will be more older people than younger people.”
So why does this matter? “Because older people don’t spend money the way
young people do,” he said, noting that it’s one major reason why the
economic recovery in the U.S. has been so tepid.
How to invest for the emerging global middle class
So what might you invest in given the blips on Meyer’s radar screen?
Well, anything that takes advantage of the emerging global middle class.
Their demand for our goods and services is rising. And that bodes well
for the U.S. economy. Each year the total customer base for every
product and service we can provide is growing at rate of 50 million to
100 million new customers per year. “We want to help world to emerge
from poverty not just for their sake, but for our own,” he said. The
emerging global middle class “will create jobs, help us pay off the
deficit, and pay down our debt.”
Given that, Meyer said the growth sectors of the 21st century include:
energy (“The amount of fuel we are going to need to bring the world out
of poverty is staggering,” he said. “This changes the entire energy
conversation.”); food (In the past eight years, for instance, China has
increased its consumption of meat has more than doubled.);
infrastructure; health care; and education.
Now if his radar is accurate, you should be able to steer your portfolio away from danger into a world of opportunity.
Robert Powell is editor of Retirement Weekly, published by MarketWatch.
Learn more about Retirement Weekly here
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Robert Powell is a MarketWatch Retirement
columnist. He has been a journalist covering personal finance issues for
more than 20 years. Follow him on Twitter @RJPIII.
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