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Is Elon Musk right about a population crash?

by , 09 June 2022
Is Elon Musk right about a population crash?
Elon Musk recently courted controversy by claiming a population collapse, not overpopulation, is a significant global threat. You might think that sounds strange. The world population is at the highest it has ever been and is still rising. A higher population also means more competition for finite resources.

Given these facts, why would you worry about a population crash? If anything, you should be worried about the population explosion.

Yet, on reflection, I believe Elon is right. Not only could a population implosion be devastating for investment portfolios, but the coming population crash could affect you far sooner than you may think.

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Need proof, let’s look at current population demographics…

The reason the world population is at a record high has far more to do with humans living longer, rather than the number of new babies being born. The truth is the number of births has fallen to critical levels almost everywhere in the world.

To maintain a population’s size, the Total Fertility Rate (TFR) should be just over two. In other words, the average woman should give birth to about 2.1 children. This is often called the replacement rate.  If you look at the world’s major economies, none of them come close to this number. In some countries, such as South Korea, the TFR is below 1.

Now you may be saying, well that’s interesting, but isn’t the effect of this only going to be felt decades in the future. This may not be the case. If you’ve followed the Ukraine/Russia war, you’ll likely have heard more than one analyst talk about the fact that the Russian population is decreasing. The projected population decline in Russia may have factored into Putin’s decision to go to war now while he still had people to man his army.

Demographic change is also playing a key role in determining the future trajectories of the world’s three largest economies: The US, China and Japan.

Japan is perhaps the furthest down the path of population decline. It’s one of the key reasons its economy has stagnated for three decades. And, while

Japan may be leading in terms of population decline, China is catching up fast. Due to its one child policy, the country has the fastest aging population in the world. As its people get older, and are not replaced by younger workers, China will move from being the world’s factory to the world's old age home. Finally, the US also has a below replacement TFR, but it is in a relatively better condition, largely due to its more open immigration policies. Even so, moving workers from the developing world to the developed world only partially solves the problem. They might achieve a higher productivity under the US system, but obviously the absolute global population situation is not improved by immigration.

So, in a world with a declining and aging population, where can you focus your wealth and benefit from the changing trend? I believe two sectors will flourish.

These two sectors are automation and health care.

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To access the future of automation, you may want to turn back to Elon Musk.

I’ve also courted controversy by arguing the investment case for Tesla (TSLA) in public. Most analysts look at the price and compare it to other car companies and draw the correct conclusion. The stock is simply too expensive to buy.

I agree with this. But for a long time, I’ve argued that if you consider Tesla as a technology company with cars being a single product stream, there is a clear justification of the higher value. Not only are you paying for access to the Elon Musk magic touch, but you’re buying into one of the most innovative companies on the planet.

Cracking autonomous driving might just be the first in a long line of successes. Moving cars around is difficult. There is an argument to be made that moving smaller objects around autonomously, like for instance humanoid robots, would be far less challenging. Lower speeds result in less catastrophic collisions but
the utility would be far greater.

Of course, this all sounds like science fiction. Except last week Tesla (TSLA) announced it could have a working humanoid robot by September of this year.

If you’re trying to value Tesla, when it could be the sole supplier of Tesla Bots… well how do you put a price on that kind of future cash flow?

But automation is only one way of gaining access to the demographic trend.
Another way would be to invest in health care technology. Healthcare is a broad sector, but one that has done incredibly well over the last year as investors have shifted from growth-oriented stocks to value-plays.

We currently hold the likes of Johnson and Johnson (JNJ), Amgen (AMGN) and Pfizer (PFE). You could also look outside the more traditional healthcare space and look at companies like Danaher Corporation (DHR) which has exposure to medical devices and diagnostic equipment.

Of course, the real challenge for retail investors isn’t identifying the larger trends. It’s not even picking the right stocks (which is why I’m happy to share our proprietary stock picks above). The real challenge is efficiently structuring and managing a portfolio over a long period of time. This comes down to costs, asset class allocation, risk analysis, efficient rebalancing, testing for overall correlation to other portfolio constituents to name just a few elements of successfully constructing a portfolio that will weather the coming storm.




Is Elon Musk right about a population crash?
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