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Investment View

With markets failing to recover their poise, last week seemed an appropriate time to head off to the Cornish countryside and test the temperature of the investing public and their advisers. The occasion was the first of the AITC&#39s 2001 roadshows. Given that the event was designed to appeal to investment IFAs, whose clients presumably did not have too happy a time of it last year, it was remarkably well attended. And confidence in the future was encouragingly high.

My task was to reassure the audience that this year was likely to be an improvement on last. Being the final speaker, I had the benefit of hearing what everyone else had to say. Imagine my surprise, then, when one contributor, who was not even speaking on markets, used an anecdote that I was planning to include as a reason why the long-term bull market should remain intact.

Malcolm Murray told the story of how US motorcycle manufacturer Harley-Davidson had restored its fortunes by refocusing its sales efforts upon males in the 47 to 52 age bracket – menopausal man. What, you might wonder, has this to do with whether the long-run bull market is still in place? The answer lies with one Harry S. Dent.

He found the correlation between likely spending by consumers and market moves most revealing. Broadly, what he did was to plot the birth rate in America and then add 47 years. Why 47? Because apparently that is the age at which the average American is at peak spending power. The bea uty of this is that you can plot the likely effect on consumer spending of a growing population well into the 21st Century.

Having compiled this chart, he then overlaid the performance of the Dow Jones industrial average. This may not be the most accurate of indices but the way in which it moves is not a million miles from that of the S&P 500 and should give a reasonable picture of how American shares are behaving. The correlation between the two is remarkable.

It seems that the baby boomer generation, which commenced shortly after the end of the Second World War, was the defining factor behind kickstarting the latest leg of the great American bull market. This high birth rate carried on until the late 60s, suggesting we have a decade and a half of booming financial markets still ahead of us. Indeed, Mr Dent&#39s research suggests that the peak will be achieved some time around 2014, after which we might see a retrenchment but not necessarily a savage return to current levels. If the scales were to correlate absolutely then Harry Dent predicts a tripling of the value of the US market from the present level.

You only have to look at a sales graph for Harley-Davidson motorcycles according to the age of the purchaser to see there is something in this theory. All through their 20s and 30s, American males appear to toy with buying such a bike. Once they reach 45, sales take off in spectacular fashion, peaking at 47, continuing at a high level into the early 50s, then tailing away rapidly. Presumably, if you have not bought a boy-racer toy by then, you are not likely to bother.

Of course, this approach has been used to examine probable trends in other markets as well. The graph for Japan is eerily accurate. They did not enjoy the baby boom with which America was blessed but there was a sharp decline in birth rate which, when you add the requisite number of years, uncannily mirrors the steep fall in the Nikkei Dow. The prospects for Japan look as though they will turn around shortly after 2010. There could be an interesting switch between markets then.

I think I might try to meet Mr Dent. It sounds as though he has some interesting theories. Perhaps he will even help me with those all-important asset allocation decisions.

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