Written by Keith Springer| 5.2.13
In a recent talk with an investment club, I was asked to compare the cyclical demographic problems our country is facing, which I explain in-depth in Facing Goliath- How To Triumph In The Dangerous Market Ahead, to something that you can actually see in society today. The most fitting analogy I came up with was the mini-van. Think about it. Sure they’re around, but nowhere en masse like they used to be 10 or 15 years ago. In 2000, Americans bought 1.4 million minivans, which made up 8% of all auto sales. But by 2012, that number had fallen by nearly two thirds, to just 500,000, and today only 3% of all auto sales are minivans.
Did American kids stop taking piano lessons and playing soccer? Of course not. It is simply the effect of changing demographics in the U.S. 1961 saw the peak of the baby boom. Jump ahead 30 years when most people have children in the 1990s, and those 30-something baby boomers became parents, constantly carting around the rug-rats in every direction, but those days are over. My son Josh is now in college, and I drive almost 1/3 as much as I used to. No, I never had a mini-van thank you! Not so coincidentally, this just happened to come at the point in my life when I started thinking about my retirement. While spending less in the economy, I was also starting to save more for my golden years 20-30 years down the line. At $4 a gallon for gas, that was a big savings for me, and also a whole lot less was spent on stuff I no longer needed. This trend was nationwide, for by the early 2000s, most baby boomers had hit 40.
Where are those baby boomers today? They are now in their 50s and 60’s, and things like pizza parties, and basketball or soccer practice are distant memories. Our children, the echo-boomers, are moving out of the house and some already have kids of their own. The minivan was a vehicle created for baby boomer parents, and its rise and subsequent fall corresponded perfectly to the family formation cycle.
Are min-vans coming back? Hell no. No one thinks their parents’ tastes are “cool”. We rejected our parents wood-paneled station wagons, and our children will reject minivans. A young mom may proudly take her son or daughter to soccer practice, but that doesn’t mean she wants to be called a “soccer mom.” What they will drive is anybody’s guess, but you can rest assured that the major automakers are asking themselves the same question.
One interesting trend is that luxury automakers are taking a different tack. For as long as I can remember, we Americans have loved the bigger, higher profile cars in order to impress. The new generation of high-income consumers are not only looking for the perfect combination of comfort and style, but also to be eco-sensitive. This is why we’re seeing almost all of the high-end brands rolling out smaller luxury cars. Have you seen the new Ferrari hybrid? (pictured above). Ferrari just unveiled a new 789-horsepower gasoline engine, and a 160-horsepower electric motor V12-powered hybrid supercar that can go from a dead stop to 62 miles per hour in under three seconds, with a top speed of 205 miles an hour!
Unfortunately, we are still 5-7 years away from the echo-boomers hitting their peak spending years. Most of them are just finishing school (Josh is just a freshman at University of Arizona) and entering the workforce. No matter what else happens in the news, this is the single most important trend we will see for decades. The last boom of the 80s and 90s was a consequence of the baby-boomers settling down, raising families, and spending money in the economy.
The 2020s will be a decade in which fortunes are made. Until then, there are still plenty of ways to prosper. The key is to be properly invested in a portfolio that is designed to get the best returns with the least risk possible, as our investment approach is built to do.
…… and that’s where we can help. To learn more about our powerful proprietary Investment Management Strategy and/or get a free second opinion on your portfolio, simply reply to this email, attend one of my free investor Workshops, or call for a no-cost no-obligation consultation today at (916) 925-8900.