Merch Store

Part 6

Demographics Are Destiny

What influences markets and demand more than anything else? Well, if you zoom out and think about it a bit, it is obviously how many people there are and how much money they will have to spend. Yes, on any day there can be a thousand individual headlines moving markets to varying degrees, but ultimately the relatively predictable path of demographic changes is likely going to be one of the best masts you can tie your strategy to during stormy seas. Demographic trends are like trains, you can see them coming a mile away and if you don’t get out of their way before or hop aboard, they come to where you are, they will absolutely flatten you.

Demographics Are Destiny
Source: Source: Fundstrat. Car purchase: Running regression between “Estimated Total Motor Vehicles on the Road” and “US Population 16+”, we got the relationship between two variables: Estimated Total Motor Vehicle on the Road = 1.0783 x US population 16+ – 13.0604And r^2 = 0.9491And using this set of coefficients and the data from census population by year, we estimated the future total motor vehicle on the road until the year of 2028. Average age of cars is 14, we assume this will increase 0.025 every year. We use total motor vehicle on road divided by Average age of cars and get the Total New Car Sales of that year. Then we use Millennials Population (Age 18+) divided by Total Population (Age 18 – 65) to get the ratio that Millennials’ car purchase within the Total New Car Sales

As you can see millennials will inevitably make up more and more of the consumption base for key products driving economic growth. Not only is a nearly unalterable reality, but they will also be inheriting trillions of dollars from the wealthiest generation in history, the Baby Boomers. So, the disparaging stereotypes of all generations in their youthful phases eventually erode as they become the primary consumers driving the economy. However, disregarding the sentiments of the younger generations, as many flaws as they may have, is always done at the peril of investors. Sometimes young people inherently understand the value of a technological trend ahead of the stodgy consensus.

Demographics Are Destiny
Source: Fundstrat, Bloomberg

Have you ever wondered why the prodigiously sized tiger appears bright orange? It doesn’t appear to be camouflaged with our primate perceptions. It seems counterintuitive that a beast that depends on stealth to support the massive calorie intake required for its survival would be one of the brightest and most distinguishable colors. To our perception, this makes no sense. However, to the primary prey of Tigers that are “color blind,” their adversary appears green. So, from the perspective of their intended prey, they are camouflaged. This type of different perception can be thought of as an analog for why sometimes younger generations are the best at spotting endurable trends.

When our Head of Research, Tom Lee, was getting his start in research he was a non-consensus voice on the then prospects of mobile telephones. Hindsight is of course 20/20, and we all now understand the significance of mobile phones and a huge portion of humanity carries one around daily. However, when the technology first emerged many on Wall Street thought that it was a niche product for the ultra-wealthy and any expansion would be curtailed by the powerful incumbent telecom industry.

When Tom has discussed this extraordinary call, he mentioned that he saw young people as voracious adopters of the technology who understood its potential. The old guard on Wall Street was “color blind” like a tiger’s prey, whereas Tom Lee and the young folks and pioneers he spent time within the course of his analysis saw a bright orange tiger ready to make mincemeat of legacy telecoms.

Demographics Are Destiny

Related Guides