Welcome to Demographics School Presented by Rodney Johnson President HS Dent Publishing

1. Welcome toDemographics SchoolPresented byRodney JohnsonPresidentHS Dent Publishing

2. How many clients do you have? What is the average age of your clients? What is the average wealth? What is your average income per client? Where do most of your clients live? What level of education do they have? What is their race or ethnicity? Describing Your Practice

3. Key Facts

4. Economics Classical Economics Keynesian Economics Malthusian Economics

5. …the Fed "shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Amended Monetary Act 1913

6. Target Fed Funds Rate Source: Federal Reserve

7. 30-Year, 10-Year, and Fed Funds January 88 through Jan 07

8. Demographics

9. Strong Uptrends and Downtrends in Births

10. Average Immigrants per Year by Age1945-2000 Source: US Census Bureau

11. Thousands Immigration Adjusted Birth Index

12. U.S. Population in 2000by Age Cohort

13. Analyzing Data

14. Sampling and Central Limit Theorem Normal Distribution Dispersion Correlation Coefficents Statisticsand other fun math

15. Gaussian distribution needs only two parameters to describe – mean, and variance. 68.26% of observations fall w/in 1 Standard Dev. 95.44% w/in 2 99.74% w/in 3 Normal Distribution (Bell Curve)

16. Returns are normally distributed 2. Returns are independent The Flaws of Return Estimates

17. Chance of August 31st, 1998 – 1 in 20mm Chance of the 3 declines in August 1998 – 1 in 500mm Chance of October 19th, 1987 – less than one in 10 to the negative 50th power, a number that does not occur in nature Impossible Market Days

18. Daily Price ChangesDJIA 1998

19. Instead of being Gaussian, or Normal Curve, investment returns fall along a Cauchy Distribution, which exhibits a higher mean, less observations along the curve, and “fat tails”. True Distribution of Returns

20. Most days on equity markets are marked by small, incremental changes. Large percentage changes, however, tend to be followed by large changes. This is called “volatility clustering”, indicating that exceptional volatility happens in sequence. Returns Gain Momentum

21. Because investment returns exhibit “fat tails”, the extreme observations or returns are more likely that we would assume. We value loss more than we value gains (2+x) These two facts together mean that investing in equities is much riskier than we normally describe. Investing is Riskier Than Commonly Described

22. BREAK HS Dent Demographics School

23. Guest Speaker

24. “The Bubble Boom” presented by Harry S. Dent, Jr.

25. The Spending WaveBirths Lagged for Peak in Family Spending

26. S&P 500 Earnings 5 3 1 4 2 Actual data through 3/31/06, S&P estimates through 12/31/07. Source: Standard & Poor’s (www.spglobal.com)

27. Historical Price of Oil1946-Present 5 5 3 4 3 b 1 2 a c 4 1 2 Source: Dow Jones Energy Service

28. 29-30 Year Commodity Price CycleCRB Index (PPI before 1947) 2038-39 2009 1980 1920 1951

29. 34 to 36-Year Geopolitical Cycle Dow Industrials 20,000

30. Dow Channel1974-2010 5 50,000 20,000 3 10,000 4 5,000 1 1,000 2 2005 2010 1980 1974 2000 1985 1990 1995

31. NASDAQ CompositeRevised Forecast 5 B 3 A C or C 1 4 2

32. Immigration to the United States1820-2004 Source: U.S. Department of Homeland Security

33. Total World PopulationProjection for 2010-2100 In billions Source: Investor’s Business Daily, 4/22/2004, Pg A16

34. World Spending Wave India Pakistan N. Africa Mid East Saudi Arabia China 2 Russia 2 US 1 Europe Mexico SE Asia Sub-Saharan Africa Japan 2 S. Korea US 2 Indonesia Brazil China 1 Russia 1 Japan 1 Source: United Nations

35. World Innovation/Inflation Wave India Pakistan N. Africa Mid East Saudi Arabia China 2 Russia 2 US 1 Europe Mexico SE Asia Sub-Saharan Africa Japan 2 S. Korea US 2 Indonesia Brazil China 1 Russia 1 Japan 1 Source: United Nations

36. Europe Spending Wave Source: United Nations

37. Eastern Europe / Russia Spending Wave Source: United Nations

38. China Spending Wave Source: United Nations

39. India Spending Wave Source: United Nations

40. New Economy Cycle Growth Boom Innovation Shake-Out Maturity Boom Innovation Spending Wave We Are Here Innovation/ Inflation Stable Prices Stable Prices Inflation Disinflation Deflation Inflation 2038 1968 1978 1988 1998 2008 2018 2028

41. For more information, • visit our website: • www.hsdent.com • Free download of Special Update-”Dow 15,000 by Early 2008, and 20,000 by Late 2009” • Receive a complimentary newsletter by • clicking on “Free Sample”

42. Predictable Spending Patterns

43. Traditional Description of Markets Elastic Demand - Wants Inelastic Demand - Needs Supply & Demand

44. 46-50 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 20 30 40 50 60 70 80 Age Average Annual Family Spending by Age (5-year age groups) Spending

45. Change in Spending at each Age & Stage of Life 46-50 Family, College Kids 22-30 Young Married 31-42 Young Family 50+ Empty Nesters 18-22 Single 60+ Retired

46. The Adult Life Cycle Education (college, trade school, etc.) Workforce Apartments Marriage Children Home purchase Second home purchase Children leave Pay down debts Save for retirement Vacation property Retirement property

47. Who Spends What in the Economy 2005 Source: U.S. Department of Commerce, Bureau of Economic Analysis

48. Who Spends What in the Economy 2002-2005 Source: U.S. Department of Commerce, Bureau of Economic Analysis

49. Personal Consumption Expenditures January 1990 through June 2005 Source:Bureau of Economic Analysis

50. Potato Chip Purchases Vs. Age $ Per Year