The Optimism of a Millennial Economy

Interview with Kenneth W. Gronbach

Kenneth W. Gronbach, who is an author and demographer, talks about the different demographic shifts that have occurred in the U.S. from the time of the baby boomers to now. He also shares his thoughts on Gen Y and immigrants.

Douglas Goldstein: I am very excited to be talking with Ken Gronbach, who is a human capital analytics expert. You want to know what that is? Well, he wrote a book called The Age Curve: How to Profit from the Coming Demographic Storm. In fact, Ken has a new book called Upside: Profiting from the Profound Demographic Shifts Ahead.

You can guess what human capital analytics are all about. Tell me, Ken, why would I have a demographer on a personal finance show?

Why Are Demographers Important?

Kenneth W. Gronbach: Because you need to know where the people are. Because people are consumers, they’re taxpayers, and they’re labor. Without those three elements, you don’t have much.

Douglas Goldstein: Alright, let’s go through those one at a time. People are consumers. Basically what we’re saying is that if you don’t have people buying your stuff, then companies are going to make less of a profit?

Kenneth W. Gronbach: Can I give you a quick example?

Douglas Goldstein: Go ahead.

Kenneth W. Gronbach: Levi Strauss—you’ve heard of them. They make Levi’s jeans. So they called me up, and this is 1998, and they wanted to know if they should raise the price of Levi’s jeans by a factor of two in the States. I said, "How are your sales?" They said, “They’re kind of flat right now. They seem like they’re going down.”

I said, “You’re a baby-boomer business,” and they said, “Well, we already know that.”

I said, “The last baby boomer was born in 1964.” They said, “Yes, we know that.” Then I said, “Who's your customer?" and they said, "An 18- to 34-year-old man or woman.” I said, “Add 34 years to 1964, and what do you get?” They said, “1998.” I said, “Guess what’s going to happen to your business?”

It went from $8 billion to $2 billion in three years, privately held.

Douglas Goldstein: Interesting. Maybe that’s time to sell.

Kenneth W. Gronbach: Yes, that’s right. You know, people are always saying, “Who should I short?” I could tell you who to short. Our portfolio does very well.

Douglas Goldstein: I see. So you’ll go, as we say, “north or south,” simply depending on the demographics?

Kenneth W. Gronbach: If you don’t have any customers headed your way— Imagine you’re selling hot dogs at a parade. The big groups have passed on and you’re looking at only small groups. You’re not going to sell as many hot dogs. It’s as simple as that. Same thing with cars. Can I give you an example with cars?

Douglas Goldstein: Yes, please do that.

Kenneth W. Gronbach: Okay. Lee Iacocca was on Woodward Avenue in Detroit, 1960, looking at the cars the kids are building for themselves. That’s where all the hot riders were hanging out.

He’s looking at these deuce coupes and all these two-sitter hot rods that are fast and are fond of driving, and he says, “Detroit is building lead sleds that are 6,000 pounds. We have a total disconnect. We need to build a car for the baby boomers.”

They came up with a Mustang, and they came up with it in 1964. He would have been a hero if he had sold 100,000 units between 1964 1/2 and model year 1965. He sold 700,000 units.

They could have sold, based on the reigning list, $7 million. Do you think that would affect their stock?

Douglas Goldstein: Alright, so you said three things. The number of people, so that’s an interesting statistic. What was your number two there?

Kenneth W. Gronbach: The number of people affects the consumers. It affects taxpayers, and it affects labor.

The Labor Factor

Douglas Goldstein: Got it. Let’s skip taxpayers for a minute because I am curious what you mean by labor.

Kenneth W. Gronbach: I’ll give you an example. China right now. China, under the “one child only” policy that was in place for 37 years, had a distinct advantage in the marketplace because they had tons of labor. Literally a billion people in their labor market.

But with their “one child only” policy, what they experienced—called “the demographic dividend”—was a couple that didn’t have kids advanced quicker socioeconomically.

They didn’t have to deal with kids, and in 37 years, they “prevented” a half billion kids. Well, that was great for 37 years, but now it’s time to pay the piper because now their labor costs are about to spike and not look back, ever.

They literally don’t have enough taxpayers to handle a billion elderly. Now they’ve gone to a “two child only” policy with half a billion kids. So they shot themselves in the foot.

Douglas Goldstein: Ultimately, what you’re describing is that in China, when they had only a billion workers and they were able to be very low priced, it was a benefit to them because they could be the manufacturing capital of the world.

But now, in fact we're already seeing it, the manufacturing actually has moved away from China to other countries where they still can get cheap labor. You’re saying the income is on an upward trajectory for the Chinese, and therefore, they’re not going to be able to produce at a low price anymore?

Kenneth W. Gronbach: Correct. That’s what I believe Xi Jinping is talking to Trump about, because we're seeing on-shoring here in the United States coming back with a vengeance.

The reason is, in the United States, we had a crop of kids between 1985 and 2004, which was the biggest generation ever produced in our country. It’s 86 million kids, and it’s bigger than the baby boomers by at least two birth years. These kids are currently 13–33 years old; they’re just entering the labor force.

We're the only industrialized country and the only world power that has millennials or generation Y, period. So we are in a good place, a really good place.

Douglas Goldstein: We’re talking with Ken Gronbach, who is a demographer. He speaks to companies and people around the world, and he’s written a number of books on the topic.

He’s been talking to us about how by looking at the population, you can actually judge a lot about how a company, a government, and a whole country will do.

Ken, let’s dive into this a little bit more because, frankly, you sound a little bit optimistic about the millennials. I’ve got to tell you, you’re one of the few guests I’ve had on the show who says that. Most of the people I talk to are a little bit less enthusiastic about them.

Tell me more about why that should make someone optimistic as an investor.

Millenials and the Future

Kenneth W. Gronbach: As an investor, we have labor and technology. These kids are cyber to a fault, and they’re good kids. They’re all about tech secrets. It’s going to be a very different commercial landscape.

But I’ll tell you this: going forward, if you’re the only world power that has a generation Y and an increased labor force—and it looks like manufacturing is coming back to the States along with a lot of other stuff—I have a real good feeling about Gen Y and the millennials.

Let me just tell you this real quick. Do you remember when the baby boomers were hippies into sex, drugs, and rock ‘n’ roll? I can remember my stepfather saying, “What kind of a culture are you going to? What’s your legacy going to be? This is horrendous.”

Well, what happened to the hippies? They became Republicans, or something.

Douglas Goldstein: Some of them anyway.

Kenneth W. Gronbach: Yes. Well, some of them did anyway. But the bottom line is, these kids are all going to grow up, and they’re going to throw away all those trophies they don’t deserve. They’re going to go to work, and they’re smart and decent kids. I am very positive about that.

Douglas Goldstein: Do you have any kids who are in that age range?

Kenneth W. Gronbach: I have a 22-year-old who’s in nursing school and a 25-year-old who works for me. I call her my Type A Gen Y.

Douglas Goldstein: Alright, I understand that’s why you have to speak positively about that whole generation. You could just speak positively about your kids. My kids also work for me and they’re fantastic. But maybe it’s because they learned something from their fathers.

What about immigration? How is immigration, which it sort of feels like it, at least in the news, is drastically changing the location of populations? How’s that going to affect the economies?

The Immigration Question

Kenneth W. Gronbach: It’s a positive for the United States. We actually have fewer Latinos coming into the country than are leaving. There are more Latinos that are leaving the country. If Trump builds a wall, he’s actually going to trap them in, so I’d try to dissuade him from that.

But the majority of our immigrants now in the States are coming from Asian countries, and specifically from China. They come in with high net worth and with different visa requirements. They come in creating jobs, not taking them. We’re beginning to see that everywhere.

If you want to see an example of what the Asian invasion is going to look like, all you have to do is go to Vancouver and take a look at a 1,000-square-foot condo that sells for $1.5 million.

Douglas Goldstein: But these could just be artificially increasing the prices because there’s just not enough room for everyone. That’s what a lot of people are worried about. That huge immigration is actually going to hurt the current population in any country.

Kenneth W. Gronbach: In any country? Here’s the thing—what did we learn in 2008? We learned that housing is the economy, and the economy is housing. What we have is 330 million people in the United States when you count the illegals, and demographers do. They’re here.

We have 155 million housing units, and that’s everything from a trailer to a mansion, anything. The two largest parts of our population—there’s still 80 million baby boomers and 86 million of their kids—are still living under one roof. But the kids are moving out, so we are 25 million housing units short of our needsright now unless our kids are going to sleep in tents.

Douglas Goldstein: That suggests that you would be buying real estate investments because there’s going to be such a strong demand for it.

Kenneth W. Gronbach: If you are in Virginia, down to Florida, over to Texas, up the California coast, Nevada, and Arizona, hang on to your real estate.

Douglas Goldstein: Alright, Ken, we’re just getting to the juicy stuff because now you’re talking about real specifics. Unfortunately, we’re just about out of time, but I know you have a lot to talk about and a lot to teach. Tell me, in the last few seconds, how can people follow you and follow your work?

How to Follow Kenneth W. Gronbach

Kenneth W. Gronbach: They can go to kgcdirect.com. Or, go to demogronomics.com, and you’ll see how we deal with our stock portfolios.

Douglas Goldstein: Ken Gronbach, thanks so much for taking the time.