'The Demographic Cliff' Book Review

Learn about how demographics affects the economy from guru Harry Dent

22nd of March 2017

Today I am reviewing Harry Dent's book "The Demographic Cliff", which is subtitled "How to Survive and Prosper during the Great Deflation Ahead". I read the updated paperback edition published in 2015. As the title suggests, this book is about the macroeconomic trends associated with demographics. Demographics, accord to Dent, is "the best leading indicator" because "people do predictable things as they age." [1] Demographics is defined as "the statistical data of a population, especially those showing average age, income, education, etc." [2]. Central to Dent's research is the "spending wave", which proves quantitatively that people economic demand changes as they age in a wave-like pattern. Before we begin reviewing the book, let us learn more about the author, Harry Dent.

About Harry Dent

Harry Dent was born in 1950 [3] is a financial author of books and newsletters. He has a personal website called Economic and Markets Daily (harrydent.com), which includes a book store, articles, and videos. He is also the founder of Dent Research which includes a myriad of financial information subscriptions. Dent has a MBA from Harvard, and has been a business consultant for many businesses, including Fortune 100 companies [1]. Dent regularly publishes videos on his Youtube channel. There is a Wikipedia page on Dent which does a good job at covering his history of forecasting and, to be frank, some criticism.

  • The Demographic Cliff Book Cover
    The Demographic Cliff - How to Survive and Prosper during the Great Deflation Ahead

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Japan - The Coma Economy

Dent made a name for himself when he predicted the demise of the Japanese economy in the late 1980s. This was at a time when the Japanese economy was booming and was contrary to the market and mainstream economists. The way he was able to accurately predict this was by using demographics, and in particular, the spending wave and birth index. In the 1950s the Japan's birth index collapsed and consequently 40-odd years later the spending wave showed a sharp correction.

Every country and every government should be studying Japan because it has already gone through most of what other developed countries in Europe and North America still face.
Harry Dent [1]

Japan was a particularly extreme example of demographics because of a low birth rate from a more affluent, urban population and a culture of shunning immigration. [1] Interestingly, despite massive government and central bank stimulus, stocks fell eighty percent and real estate falling sixty percent. [1] This may become prophetic when other developed countries go through their own demographic cliff.

Why the West cannot emulate Japanese quantitative easing?

Japan has been using quantitative easing since the peak in the early 1990s. Many people will question why other developed economies cannot emulate the relative success Japan has had in averting a economic crisis. One reason is because the Japanese economy has mostly run capital account surpluses during and after the boom.

Since the peak, Japan accumulated the highest total private and public debt of any major nation. It has the fastest-aging population.
Harry Dent [1]
So despite the current account surpluses, Japan has managed to accumulate a massive debt at a time when the proportion of working-age population is dwindling.

Real estate bubble?

Worldwide real estate as an asset class has been performing very well. Dent argues that this is because of "very low interest rates, unprecedented liberal lending, and the demand from the largest generation in history" [1]. This will affect both residential and commercial real estate as dyers outnumber buyers and the number in the workforce shrinks.

Real estate, along with infrastructures will be the sector most affected by this new trend ...
Harry Dent [1]
Despite the gloom for real estate in general, vacation homes and retirement homes could grow as baby boomers retire.

Get ready for debt deflation

The last time significant debt deleveraging occurred was in the great depression in the 1930s. Dent shows some interesting charts, such as US Debt % of GDP, cycles of inflation and deflation, and the velocity of money. All these things suggest the US could be heading for a period of deflation and low growth. Interestingly, Dent shows the GDP per dollar of debt and this has been steadily falling since 1966 and is now below zero.

Financial bubbles

Dent has famously made some very accurate and well timed calls regarding financial bubbles. During the recent silver boom, he issued a sell signal on silver when silver reached US$48/toz. More recently he had a call to sell junk (high-yield) bonds in 2013. His future forecasts seem to bearish China and commodities.

Gold ... next stop will be around $700 to $740 by early 2017.
Harry Dent [1]

Urbanization and growth

Emerging countries are becoming more urban and this is contributing to growing GDP in these countries.

Developed countries are already typically 80 percent or more urbanized ...
Harry Dent [1]
Dent provides charts which show a direct relationship between growth in GDP per capita and the urbanized percentage of the population.

How to benefit from the next downturn

The best advice Dent gives in this book is where to invest to capitalize on the baby boomer spending wave. The way that he does this is by extracting information from the annual Consumer Expenditure Survey (CE) from the Bureau of Labor Statistics, made available annual from 1980 [1]. He also goes through advice for companies in terms of network organization and satisfying and appealing to customers in the new customized economy. Lastly, for governments he suggests allowing the free market to run its course so that the economy can feel the "four seasons", rather than go down the Japanese way of endless quantitative easing. The big takeaway message is that people need to get use to lower rates of return.

The Demographic Cliff

The book is broken into nine chapters and a epilogue [4].

  • Chapter 1: The demographic cliff around the World
  • Chapter 2: Following Japan into a coma economy
  • Chapter 3: Why real estate will never be the same
  • Chapter 4: A look at public and private debt
  • Chapter 5: A brief history of financial bubbles
  • Chapter 6: Commodity prices: The Achilles' heel of emerging countries
  • Chapter 7: Investment strategies for the winter season
  • Chapter 8: Government strategies for facilitating free markets
  • Epilogue: A major revolution brews every 250 years
  • Concluding thoughts

    Overall, The Demographic Cliff has broad appeal for people interested in learning more about demographics and how it affects our economy. Demographics is, as Dent says, "the best leading indicator" because "people do predictable things as they age." [1] From an economic viewpoint, demographics in my opinion is more useful for its macroeconomic trends; however can be used for microeconomic trends for non-volatile statistics. A criticism I had with this book is that Dent seems to put too much faith in short-term demographic trends, which after reading the book two years after the book published, proves some of his forecasts to be wrong. Another criticism is that some parts of the book were a little bit dry when they included too much statistics and charts. At times I felt like some patterns Dent highlighted may have been more coincidental than for a given reason, therefore I would argue they may be unreliable for forecasts (for example, sunspot activity). To be fair though, the statistics and charts in general gave solid quantifiable evidence to support the assertions Dent made during the book. Readers with an analytical mind, like mine, would find this style of writing more appealing. Given that most developed countries are facing a demographic cliff, the book has a sense of urgency to investors, companies, and governments alike to adapt to this new emerging economy. Lastly I would like to leave you with a quote from the book which is written in the context that four cycles point down during this period (generation cycle, geopolitical cycle, sunspot cycle, and the innovation cycle).

    If we don't see a major financial crisis between 2015 and early 2020, I will quit my profession and become a limo driver in Australia.
    Harry Dent [1]

    • The Demographic Cliff Book Cover
      The Demographic Cliff - How to Survive and Prosper during the Great Deflation Ahead

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    [1] H.Dent Jr, The Demographic Cliff - How to Survive and Prosper during the Great Deflation Ahead. 2015.

    [2] Dictionary.com, Definition of Demographics. 2017. Available on-line.

    [3] Wikipedia.com, Harry Dent. 2017. Available on-line.