The Reverend Thomas Malthus is making a comeback.
Writing in 1798, Malthus argued that the population would grow too fast to keep up with the food supply. Disaster would ensue. (That's the short version, but you catch my drift).
Today, many people most eye-catchingly, US investor Jeremy Grantham at GMO are making the same argument: Malthus wasn't wrong; he was early. And now, once again, we're at risk of running out of everything, from energy to food to basic materials.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Given our bearish tendencies here at MoneyWeek, you might expect us to lap this up. But truth be told, I'm an optimist in the long run.
A belief that our financial system is fundamentally flawed and causes all manner of stupid, short-term investment decisions that smart investors have to navigate around is one thing. A belief that complete civil collapse is just around the corner is quite another.
And the good news is that the latest data on population growth might just back up a more cheery view of the future.
Malthus was wrong in 1798 and he's still wrong today
I've been reading a report from Deutsche Bank's Sanjeev Sanyal called 'The End of Population Growth'. You can guess what it's about from the title.
There are a lot of cracking statistics, which I don't have space to run through here. But the potted version of the argument is that global population will peak a lot sooner and at a lower level than current estimates suggest.
Census data for 2010/11 is now coming in from around the world, including the US, India and China. It shows that population growth is slowing a lot faster than anticipated.
The current UN estimate is for the world's population to hit 9.3bn by 2050, and over ten billion by 2100. But this is based on two things: that everyone eventually lives as long as they do in Japan (global life span rises from 68 to 81), and that all countries maintain "replacement level fertility".
The first assumption might be realistic, if optimistic. But the second is actually quite heroic. For one, says Deutsche Bank, "population growth is slowing for almost all countries". Japan and Germany have seen "almost zero population growth during the last decade".
More importantly, "it is the emerging economies that have seen the most dramatic deceleration in population growth The Chinese, Russians and Brazilians are no longer replacing themselves, while the Indians are having fewer children".
Given these trends, Sanyal reckons that global population will peak at around nine billion in the 2050s, then stop rising. And "global fertility will fall to the replacement rate within 15 years reproductively speaking, our species should no longer be expanding. This would be a major turning point in the history of the human race".
There's no saying this is going to be correct. Like any demographic prediction, it could be wildly out. But it's a healthy corrective to the Malthusian misery taking hold as the mainstream narrative.
What does all this mean for investors?
Let's start with commodities. We've been writing about the 'supercycle' for about a decade now. Back then, the notion of a supercycle, or 'peak oil' for that matter, were viewed as frankly loopy ideas that you'd only see in obscure academic journals or paranoid corners of the internet.
These days, the concept of peak oil - in one form or another - is practically received wisdom. I heard a presenter on CNBC or one of the other financial news channels the other day tell Jim Rogers that "we're all peak oil-ers now".
Now I still accept the ideas of the supercycle, and peak oil. But I don't accept that we're at a point of no return. That's the sort of "it's different this time" story that typically takes hold when a bull market is getting on a bit.
The key to a supercycle is that word 'cycle'. It goes up and down. You call it a 'supercycle' because it lasts for a long time. Your typical commodities bull market lasts for about 18 years, reckons Rogers. But eventually, they do end.
As for peak oil, we've been here before. As oil gets more expensive, we'll find substitutes, better extraction technology, and new sources. The pessimists argue that "there's no silver bullet". But you don't need a single silver bullet. You can start by making better use of what we have. The US in particular has lots of scope to become more fuel efficient.
And truth be told, potential silver bullets do crop up. As Sean Corrigan of Diapason Commodities Management notes, what about "the phenomenon of shale gas with its vast potential to drive oil into a narrow mobile fuel role and even to substitute for it there, given sufficient means and motivation? (Which of the wild-eyed Doomsayers predicted its advent, by the way?)"
I'm not saying this is the end of the commodities bull market. This latest bout of nerves may not be over, but it's a correction rather than the beginning of the end. I'd have to see a permanent and genuine 'strong dollar' policy in place - or the dollar's replacement by a more deserving reserve currency - before I'd be convinced that the price of real assets was heading for a prolonged decline.
But the day will come. And that's why we still prefer to invest in companies that create the solutions to resource shortages, rather than the resources themselves. You can read more about promising areas in our recent cover story on commodities: The commodities boom is not over - be prepared to buy on the dips.
Healthcare is heading for a long-term bull market
So what investments is this bullish for? Well, if the population argument made by Deutsche Bank is anywhere near correct, we're looking at a global population that will be on average both older and wealthier than anyone expects.
An ageing population with the money to spend on life extension and health products? That sounds like a very encouraging environment for healthcare. We've liked big pharma companies for a while, mainly because they're cheap.
Neil Woodford recently said that he reckons the pharmaceutical sector represents a huge opportunity. It might strike you as ironic that he sees the same scope for gains in the pharma sector that existed in tobacco 25 years ago. But if he's right, that's very exciting news for investors according to Woodford, total shareholder returns from the tobacco sector have clocked in at more than 9,000% over that period.
We also look at one of the developing nations with the 'best' demographic outlook for the coming decades in the latest issue of MoneyWeek, out on Friday Nigeria. It's one of the few countries that'll have a growing, rather than a shrinking, workforce in the decades to come. The country has plenty of problems, as you'd expect. But if it can get its act together, there's a very compelling investment case to be made - my colleague James McKeigue runs through it in our latest cover story. If you're not already a subscriber, subscribe to MoneyWeek magazine.
Our recommended article for today
A small-cap company with a bright future
Switching to more energy-efficient forms of lighting over the next decade could save over 8.4bn tonnes of CO2 emissions. So it's little wonder the market for LED lighting is thriving. Tom Bulford looks at one small-cap company that could reap big benefits from this fast-growing sector.
-
Should you invest in UK equities?The FTSE 100 hit a record high this week, but UK equities remain unloved and undervalued compared to their global and US peers. Should you snap them up at a discount?
-
State pension errors: DWP urged to check for mistakes among divorced peopleFormer pensions minister Steve Webb says there are a high number of divorced women on low state pensions. Now MPs want the DWP to check if there were any errors in “potentially underpaying men and women who are divorced”.
