Is the World Less Stable or More Populated and Better Reported? Demographic Insights.

According to the United Nations (UN), there are currently 7.6 billion people alive in the world today.  The UN further estimates that the number will hit 10 billion by 2050, and 11 billion by 2100.

As recently as 1974, the world’s population totaled 3 billion. At the time of 1 AD, the world’s people were estimated to be 170 million.  It took 1800 years to reach 1 billion, and 127 years (to 1927) to notch 2 billion.  

The increase in the world’s population is the result of three things: better public sanitation, more productive agriculture, and advances in medical care.  People are living longer, which keeps populations growing in spite of declines in family size.  

At the same time as populations are growing, advances in technology makes reporting on events of the world ever more real.  Improvements in video and audio quality combined with declines in recording equipment prices have allowed the recording of events around the world, and their promotion on social media, to look like they are just down the street.  Even ten years ago, this would not have been possible.

These two trends are becoming intertwined.  For example, according to FBI statistics, violent crime is down in the US, and has been trending down for years.  This is chiefly attributed to the aging of the population, as older individuals, as a group, are less likely to commit crimes of passion than the young.

However, the perception is that crime and terrorism is increasing.  This is due, in part to the ability to record and broadcast events immediately from almost anywhere in the world.  It is also due to crimes in lower income areas being promoted as going on everywhere.  Thus while the data on crime is down, the public seems to believe that crime is rampant and local.

Then there is the population factor.  Let’s say for the sake of argument that the number of certifiably insane people is 0.1% of the population.  That would come to one million people per billion.  Even at this level, there are 7.6 million mentally unstable people in the world today, and twice the number of 42 years ago.  While this is not a large number, it is more than most people would care to deal with.  

But even if you had to deal with them, what is the possible outcome?  The odds of dying from a terrorist attack are 1in 9.3 million.  While this is 26 times more likely than dying from a falling coconut (1 in 250 million), it is 4 times less likely than dying from falling off a ladder (1 in 2.3 million), and 14 times less likely than drowning in a bathtub (1 in 685,000).  In fact, such a mundane event as dying in an automobile accident is 500 times more likely than perishing in a terrorist act.

This gets to the essence of terrorism: it plays with your head.  Terrorists do not occupy one acre of land, yet when they do, like ISIS, they are not very good at it.  Terrorists have two objectives:  First, they want people to be afraid of them, all out of proportion to their numbers or ability to do harm.  Second, they want free societies to hobble and restrict themselves and their liberties in a way that the terrorist would do themselves, had they the ability.  Most of the time, terrorists do not have the ability to restrict free societies.  Instead, in order to fend off the perception and potential of terrorism, societies restrict themselves.

This brings us to the current presidential elections.  On the Republican side, you have a candidate who readily acknowledges the existence of threats to the country.  At the same time, he alone has the ability to address these same threats.  Incumbents, including the candidate on the Democratic side, are perceived as part of the problem.  On the Democratic side the mantra is experience. From Bin Laden to his myriad of successors, many have been removed by the incumbent.  Many, but obviously not all.  

Being someone who works in counterterrorism is like being a goalie in a hockey game.  A goalie can block many pucks, but the only ones anyone will remember are the ones that get through.  The general public cannot always be told of what was blocked, in order not to compromise counterintelligence.  So the public is left to assess the situation within its own mind (in terms of statistics or probabilities), or with its heart, in response to cable and social media.  This is the outline of the current elections.

Terrorism will likely be around for a long time. So long as there is social change, there are forces that want to resist and counter change.  As cell phones and satellites make the world a smaller place, the motivation of those who wish to resist the influence of western culture, as promoted on media, increases.  Resistance to change is real.  Violent resistance is kicking things up a notch.  Terrorists, using social media, recruit the young and impressionable to their cause, appealing to their ideas and playing down the consequences of the same.  

Almost nine hundred years ago, the church recruited the European young and poor into service in the Middle East to liberate Jerusalem from the Muslims, in what was then known as the Crusades.  Almost none of them returned.  This may have been an early lesson in the consequences of trying to change people faster than they want to be changed, if they even want change.   It is a pity no one seems to have learned from it.

The Economy

Economic activity notched a preliminary number of just 1.6 percent growth in the second quarter.  Drilling down into the data, consumer spending was robust, while business capital spending was anemic.  

This can all be traced back to energy.  Falling energy prices have buoyed consumer spending, while at the same time decimating capital budgets of energy companies have led to sharp contractions in capital spending plans.  Assuming energy prices are leveling out, this can be seen as a one-off event.  By 2017, excess energy supply should be soaked up, and by 2018, capital spending in some sectors will be set to resume.

Interest Rates

While the Federal Reserve passed on a chance to raise interest rates this month, they are looking more likely to raise them in September, or later in the year.  As we get closer to November, the Fed runs the risk of looking political in changing interest rates so close to an election.  One senses that the longer they wait, the more aggressive the interest rate increase will become once it commences.

Inflation

Anecdotal evidence of tighter labor markets abound.  Many resorts are not finding the employees to hire.  Landscape companies cannot complete contracts due to a lack of workers.  Tomatoes are imported from Mexico because not enough people can be found to pick them in the US.

Addressing the labor issue is one of the first priorities of the next administration; whether it will result in more worker visas, higher minimum wages, or that which remains to be seen. 

The Stock Market

It is always dangerous to generalize about stocks.  Still, stocks as a group are selling at rich premiums which may not reward the faithful.  At the same time, neglected parts of the market may benefit from a rising economy and stronger demand.

One notices the air pockets that many of the favorite stocks have hit.  There has also been a sharp upward revision in prices—after favorable earnings came out—although, the gains often do not last.  

An area of special concern is the banking sector.  Both political parties are on record “to reduce the size of banks,” along the lines of re-imposing the Glass-Steagall Act, which was imposed in 1933 and repealed in 1999.  This Act separated commercial banking from investment banking.  

 

Warren M. Barnett, CFA

Warren Barnett

Warren Barnett is the founder and President, and Portfolio Manager for Barnett & Company. He was associated with the investment banking firm of Kidder, Peabody & Company and the investment counseling firm of Davidge & Company in Washington before returning to Chattanooga to accept a position in the trust department of a local bank. Perceiving the local need for the type of firms with which he was associated in Washington, he established Barnett & Company in 1983. He obtained the Chartered Financial Analyst professional designation from the Institute of Chartered Financial Analysts, Charlottesville, Virginia in 1986. Mr. Barnett graduated from The McCallie School in Chattanooga. He received his Bachelor of Science degree in Accounting from the University of Tennessee at Knoxville and his Master of Business Administration degree in Finance from the Owen School of Management at Vanderbilt University.
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