End of Demand?

by | Aug 25, 2001 | Archives

Here is an economic fundamental that can rock everyone's financial world!

The message below just came from a very sharp reader in reference to my recent article about Jeremy Grantham and timber.

	"Namasté, Garyji -- enjoyed your comments on Grantham and his	viewpoints. Something that not many people are wondering, however --	and something that I believe overshadows the whole question of investing	-- is:		Can the American purchaser ever get tired of owning evermore stuff?	And if so, what happens then to the emerging markets ... and most other	markets, too?		Living the way you do, I'm sure you've felt the call to a simpler, less	complicated and stuff-laden life. As have I.		Is this new call to a simpler life the real wave that will call the	steps of the next part of this eternal dance? We all know Mr./Ms.	Consumer is neck-deep in debt; but is it possible s/he might actually	someday become bored or overwhelmed by it and the costs for storing the	latest in ... everything?"

This question fits so well with the messages you have received about the Dream Society over the past two yearsplus allows me to share a horded Financial Times (www.ft.com) article entitled “The Death of Demand” by Andrew Hill (andrewhill@ft.com). Here is what the article says that the current downturn is the latest chapter in a 30 year saga of falling sales growth.

Here are some excerpts from that article: “Imagine if demand went away and never came back. Inflation would die; companies would be forced to cut costs to sustain profit growth; the central bank would be pushed into interest rate deductions. It sounds similar to the first phase of the US economic slowdown.”

“James Paulsen, chief investment officer of Wells Fargo Capital Management points out that from a robust 10% in the 1970s, annualized sales growth has dropped to below 8% in the 1980s. It fell then to 5.5% in the 1990s, its lowest level since the second world war. He calls this the “death of demand”, brought about by a dwindling population growth, tepid expansion of debt since 1990 and the near disappearance of government spending as an economic stimulus.

The chances of demand growth reawakening soon are slim. Outside the developed world, emerging markets will be slow to pick up the slack.

“American consumers may not need much more stuff.”

The many messages we have shared about investing in the “Dream Society” are based upon Maslow's hierarchy of needs and the materialization of demand. We'll look at this in more detail in tomorrow's message.

Until then, good global business and investing!