presented by

Harry S. Dent, Jr.

(1993) (2011)

Aging Baby BoomersTheir Impact on the Economy and Financial Services Industry

Shocked by the Financial Meltdown

Be at Peace with Change

2,200,000

2,700,000

3,200,000

3,700,000

4,200,000

4,700,000

5,200,000

1956 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056

1,000

4,000

7,000

10,000

13,000

16,000

Immigration-adjusted Births

Lagged for Peak Spending

Dow Adjusted for

Inflation

The Spending WaveBirths Lagged for Peak Spending

Data Source: HS Dent Research, U.S. Census Bureau, Bloomberg, 2011

Average Annual Family Spending by Age (5-year age groups)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

Sp

en

din

g

46-50

20 30 8060 705040

Age

Labor Force Growth, Actual and Forecast

(20-Year-Olds Minus 63-Year-Olds)

100000

600000

1100000

1600000

2100000

2600000

3100000

3600000

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

-0.01

0

0.01

0.02

0.03

0.04

0.0520 year olds minus 63 year olds Labor Force Growth

Data Source: Bureau of Labor Statistics, HS Dent, 2011

20-6

3 Y

ear

Old

sL

abo

r Fo

rce Gro

wth

Rate

Source: U.S. Census Bureau and U.S. Bureau of Labor and Statistics

20 Year-Oldson a 3-Year Lag

Minus 63 Year-Olds

Inflation

Inflation ForecastA

nn

ual

Lab

or

Fo

rce

Gro

wth

An

nu

al I

nfl

atio

n (

%)

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

Apr-53

Apr-55

Apr-57

Apr-59

Apr-61

Apr-63

Apr-65

Apr-67

Apr-69

Apr-71

Apr-73

Apr-75

Apr-77

Apr-79

Apr-81

Apr-83

Apr-85

Apr-87

Apr-89

Apr-91

Apr-93

Apr-95

Apr-97

Apr-99

Apr-01

Apr-03

Apr-05

Apr-07

Apr-09

Apr-11

Apr-13

-6.00%

-1.00%

4.00%

9.00%

14.00%

Inflation Indicator

Data Source: Bureau of Labor Statistics, HS Dent, 2011

LABOR FORCE GROWTH2.5-YR LAG INFLATION (CPI)

Demographics

What You Must Understand Now

Demographics

Debt

What You Must Understand Now

Demographics

Debt

Deflation

What You Must Understand Now

Part One: Demographics

Projecting Trends, not Years, but Decades in Advance

People Do Predictable Things as They Age

10

100

1000

10000

1904

1909

1914

1919

1924

1929

1934

1939

1944

1949

1954

1959

1964

1969

1974

1979

1984

1989

1994

1999

2004

2009

S&P 500 Adjusted for Inflation 1900-2009, Log Scale

10

100

1000

10000

1904

1909

1914

1919

1924

1929

1934

1939

1944

1949

1954

1959

1964

1969

1974

1979

1984

1989

1994

1999

2004

2009

1929

1968

2007

39-40 Year Generation CycleS&P 500 Adjusted for Inflation

Babies Are The Key to The Future

The Immigration Adjusted Birth Index

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

1909

1919

1929

1939

1949

1959

1969

1979

1989

1999

2009

Imm

igra

tio

n A

dju

sted

Bir

ths

This Is What You See

Potato Chip Purchases by Age

0

10

20

30

40

50

60

70

10 20 30 40 50 60 70 80Age of Head of Household

$ P

er Y

ear

42

Motorcycle Sales by Age

0

10

20

30

40

50

20 25 30 35 40 45 50 55 60 65 70

Age of Head of Household

$ P

er Y

ear

45-49

What Would Grow As Baby Boomers Age?

Spending on Prescription Drugs by Age

0

20

40

60

80

100

120

140

160

180

20 25 30 35 40 45 50 55 60 65 70 75 80

Age of Head of Household

$ P

er

Ye

ar

81

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

18Colleges

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

21

Offices

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

26Apartments

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

26

Shopping Centers

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

29-33

Starter Homes

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

37- 42

Trade-Up Homes

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

46-48Vacation Homes

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

Resorts54

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

Vacation / Retirement Homes

63-65

Real Estate Spending CyclesS

pen

din

gS

pen

din

g

20

Age

24 28 32 36 40 44 48 52 56 60 64 68

Vacation / Retirement Homes

63-65

Resorts54

46-50Vacation Homes

37- 42Trade-Up Homes

29-33

Starter Homes26

Apartments / Shopping Centers21

Offices

18

Colleges

Mortgage Interest by Age Average of Annual Numbers 1999-2009

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Spring Summer Fall Winter

Stocks/ Economy

Generation Spending Boom

Consumer Prices/ Inflation

Simple Four Season Economic Cycle Eighty Years in Modern Times

Source: HS Dent

Past Forecasts

“For the 1990s and Early 2000s – Our Greatest Boom: Dow Rises to 10,000.”

Our Power to Predict, back cover (1989)

“After those enormous deficits into 1992, the government will likely be in a balanced budget or surplus by 1998-2000.”

The Great Boom Ahead, pg 62 (1994)

“The next great depression will be from 2008-2023.”The Great Boom Ahead, pg 16 (1994)

"No amount of government stimulus will prevent it…" The Great Boom Ahead, pg 35 (1994)

Top Federal Individual Income Tax Rates1913 - 2010

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%1913

1923

1933

1943

1953

1963

1973

1983

1993

2003

Source: IRS

Per

cen

tag

e

Part Two: Debt

The Greatest Credit Bubble in History

The Great Real Estate Bubble

0

10,000,000,000,000

20,000,000,000,000

30,000,000,000,000

40,000,000,000,000

50,000,000,000,000

60,000,000,000,000

1977 1982 1987 1992 1997 2002 2007

Federal Govt Trust FundsFederal GovtState and Local GovtFinancial SectorForeignCorporateHousehold OtherConsumer CreditHome Mortgage

Government$14Trn

Financial$17Trn

Corporate$11Trn

Consumer$14Trn

Total:$56 Trn !

Source: Federal Reserve Flow of Funds Report

Total U.S. Debt - 2008

Unfunded Entitlement Obligations In $Trillions

10

20

30

40

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Source: The White House, US Treasury

Addition of Medicare Part D

Includes Social Security and Medicare

$46 trillion

Unfunded Entitlement (Medicare + Social Security) + UnderfundedEntitlement Expenditures (Medicaid) = Among Largest Long-Term

Liabilities on USA Inc.'s Balance Sheet

Source: Kleiner, Perkins, Caufield & Byers - www.kpcb.com, USA Inc. February 2011

Total US Debt

Total Debt Obligations

7 x GDP !!!

$56 trn

+

Unfunded Federal Liabilities $46 trn

=

$102 trn

Total US Debt Obligations

Projected Federal Deficit for 2020 at Varying Revenue Levels ($ Billions)

CBO HS Dent Optimistic

HS Dent Realistic

Total Revenues $4,416 $3,029 $2,524

Mandatory Expenditures $3,267 $3,267 $3,267

Discretionary Expenditures $1,487 $1,487 $1,487

Net Interest $916 $916 $916

Total Expenditures $5,670 $5,670 $5,670

Deficit ($1,254) ($2,641) ($3,146)Source: Congressional Budget Office Presidential Budget, HS Dent

Long Term House Prices vs. Inflation

Source: Robert J. Shiller, Irrational Exuberance, 2nd Edition, Princeton University Press, 2005.

0

50

100

150

200

250

1880 1900 1920 1940 1960 1980 2000 2020

Home Prices

0

50

100

150

200

250

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Japan Statistics Bureau

Prices rose 2.6 times in 5 years

Japan Residential Land Price National Index

Japan Residential Land Price National Index

0

50

100

150

200

250

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Source: Japan Statistics Bureau

Bubbles tend to go back to where they started

Source: Amherst Securities

Pre-Tax Income Borrowing Power

2.8 times

Borrowing Power of a Typical Home Purchaser

0

50

100

150

200

250

1994 1996 1998 2000 2002 2004 2006 2008 2010

-55%-65%

-33%

Average US Home PricesCase-Shiller 10 City HPI: Jan 1994 – Mar 2011

Source: Standard & Poor’s Case-Shiller US 10-City Home Price Index

Sea

son

ally

Ad

just

ed

In T

ho

usa

nd

s

Case-Shiller Top Metro AreasPercent Decline from Peak Values

-54%

-52%

-48%

Source: Standard & Poor’s Case Shiller US 20-City Index

Case-Shiller Top Metro AreasPercent Decline from Peak Values

-54%

-52%

-48%

-36%

-34%

Source: Standard & Poor’s Case Shiller US 20-City Index

Case-Shiller Top Metro AreasPercent Decline from Peak Values

-54%

-52%

-48%

-36%

-34%

-11%

- 8%

Source: Standard & Poor’s Case Shiller US 20-City Index

Miami

Dallas

The Ticking Time Bomb

Total 90-Plus Delinquencies and Foreclosures

Source: Information provided by LPS Applied Analytics

Inventory is 50X Monthly Sales

Part Three: Deflation

The Restructuring of Massive Private Credit will Outweigh Government Stimulus and Rising Debt

The Deleveraging of Credit Bubbles always Leads to Deflation, not Inflation

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Spring Summer Fall Winter

Stocks/ Economy

Generation Spending Boom

Consumer Prices/ Inflation

Simple Four Season Economic Cycle Eighty Years in Modern Times

Source: HS Dent

Monetary BaseYear/Year Percentage Change

Source: Hays Advisory

This must lead to inflation!

The Velocity of MoneyGDP to Adjusted Monetary Base

5

10

15

20

25

1960 1970 1980 1990 2000 2010

Source: St. Louis Fed, US BEA

Household Net Worth

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

55,000,000

60,000,000

65,000,000

70,000,000

2002 2003 2004 2005 2006 2007 2008 2009

Source: Federal Reserve

-$26 trn +

-$18 trn

Source: © The Economist Newspaper Limited, “Repent at Leisure,” June 4, 2010

GDP per $ of Debt

Median Household Net Worthby Age of Head

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

<35 35-44 45-54 55-64 65-74 75+

AgeSource: Federal Reserve, 2007 Survey of Consumer Finances

15%

20%

25%

30%

35%

40%

45%

50%

1922 1932 1942 1952 1962 1972 1982 1992 2002 2012

1929 Stock Market Peak

Source: Edward Wolff, as printed in Wealth and Democracy and New York University, 2010

Net Worth of Top 1% of U.S. Households1922-2007

35%

40%

45%

50%

1983 1988 1993 1998 2003 2008

Source: Edward Wolff, as printed in Wealth and Democracy and New York University, 2010

Financial Assets of Top 1% of U.S. Households

1922-2007

Source: New America Foundation

Income of Top 1% of Households 1920 - 2010

For More Informationwww.hsdent.com