We all like to believe we are unique individuals and we are. But when it comes to understanding how the U.S. economy works it may not be as complicated as we have been lead to believe. It may be as simple as studying the buying behavior of ordinary consumers, based on age. Now you won’t hear many wealth managers or economists make the statement I have just offered you so let me explain. By the way, I don’t need a chorus of agreement on my points here. I am just fine doing this solo.
Let me ask you to go back to middle school and answer this question. What snack did you consume nearly every single day? The answer for many Americans may be potato chips. It is one thing to read the facts, but it’s far more interesting to see our own behavior is part of the greater behavior pattern of ordinary people. I can remember when I was at Audubon Junior High School where there wasn’t a day that went by that I passed on eating at least one bag of Lay’s Barbeque Potato Chips. On weekends it was often 2 to 3 bags a day. The data suggests that Americans consume the most potato chips in life at age 14. It also means as parents we bought the most potato chips in life around age 42 for our, on average, 14 year olds at the time. So far, not one thing has changed this pattern.
Thanks to paying for objective, independent research starting in 1999, Dent Research members studied a company that before WWII was called Japs. Leonard Japp, Sr. began selling pretzels from his truck in 1927 in Chicago. The business grew thanks to a potato chip recipe made by Japp’s wife, Eugenia. After the Great Depression Japp began working with a new business partner and the pair began selling the tasty chips under the brand name, ”Mrs. Japp’s Potato Chips.” The company wisely became Jays Foods after the 1941 Pearl Harbor attack. The family sold the company to Borden, Inc. in 1985 and it was re-acquired by the Japp family in 1994. The second time in four years, Jays Foods filed Chapter 11 bankruptcy in 2007, as the manufacturing plant closed permanently late that year.
It’s a textbook case of the decision makers’ preoccupation with sales data. The company expanded with more plant, more loans, more equipment and staff as the smart decision makers, with the best of intentions, missed one crucial piece of information. The board and the family failed to check with the data provided by the U.S. Census Bureau to see how many 14 year olds were coming down the pike in the mid-West. The rest, along with the company, is history.
At a meeting with business owners the first week of May, 2017 the conversation turned to wonder about what’s going on with the car industry today. As Reuters observed on May 2, 2017, “Major automakers posted declines in U.S. new vehicle sales for April in a sign the long boom cycle that lifted the American auto industry to record sales last year is losing steam, sending carmaker stocks down.”
Does this sound familiar to you? “The drop in sales versus April, 2016 came on the heels of a disappointing March, which automakers had shrugged off as a bad month. But two straight months has heightened Walls Street worries the cyclical industry is on a downward swing after a nearly uninterrupted boom since the Great Recession’s end in 2010,” Reuters reports in the same report.
In the chart below you can see automaker sales data.
When you focus on the recent sales data, you see the product line is the best ever, interest rates are relatively low, and financing can be in place for 7 years, you want to know with good product and favorable financing, what’s going on?
Let me put it this way. When it comes to eating potato chips or buying cars many adults have simply lost their appetite. Look at the chart below. Just as adult Americans just said no to eating chips we are losing our appetite for buying cars. Let me say again, to get a handle on thing, please pay attention to the buying behavior of ordinary Americans based on age.
As a Chartered Member and Master Certified member at Dent Research since 1999 we study the buying behavior of the average Americans who enter the work force at age 19 as well as educated citizens who start working after completing higher education. Prior to Quantitative Easing peak car buying occurred for most of us in our mid-50s. Harry Dent, president at Dent Research and his team saw a shift occurring. Thanks to low interest rates and QE it appears that American car buying moved into the mid-60’s. “Master Certified” references those who pay a fee to learn about various economic trends and have demonstrated by passing tests the ability to effectively answer questions related to research. This alone does not qualify a financial professional to give investment advice.
Please notice that as we age our appetite for spending, other than on health care, is like a waterfall. Do not get lost in the weeds by looking at sales data (blue for 1985 to 2002, red for 2009-2015). That information is based on the past. That’s history. Instead, let me suggest that you stay in the present and look at the future requirements relative to age. Baby boomers in 2017, born between 1946 and 1964, according to the U.S. Census Bureau, range in age from 53 to 71. Look at the changes in the buying behavior of this group of 76 million Americans to see what to lighten up on owning and where there may be opportunity. According to me, Father Time and Mother Nature continue to hold the real ‘trump’ cards. Step 1: Diversify like you’ve never done before. Step 2: Identify active management strategies that may move risk assets to defensive positions when the grits hit the fan. Again.
The opinions voiced are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk. There are no guarantees that any managed portfolio will meet its intended objective. Neither asset allocation nor diversification can ensure a profit or prevention of loss in times of declining value.
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