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MONEY MANAGEMENT


The Pessimism Bash

06/25/02 01:17:53 PM PST
by Ron L. Ellison

People throw all kinds of parties. How about a maximum pessimism bash?

The pundits say at least three clouds hang over industries: fear of increased government regulation, generic competition, and the threat of rising prices. In the early 1980s, the big oil companies gained a reputation for earning obscene profits. In the marketplace, perception often trumps reality. Patent drug manufacturers face a similar risk today.

A quick look at simple demographics, however, should clear the picture. The world population is aging. Not only are birth rates down in industrialized countries such as the US, Japan, and Italy, to name just a few; the world population overall is also undergoing what the head of the United Nations' population division refers to as a "historical reversal" — where people 65 and older for the first time outnumber children under the age of 15. Population in the US is estimated at 275 million, with 75 to 76 million classified as baby boomers.

Two major forces are driving this change: an increase in life expectancy and falling fertility rates. At the turn of the 20th century, life expectancy for males in the US was about 49 years. Today, it is about 76 years, a dramatic increase. A similar increase in life expectancy is taking place around the globe, both in developed and underdeveloped countries. Falling fertility rates affect the equation because new births replenish populations. In the past decade declining birth rates fell even further than anticipated, both in developed and underdeveloped countries. Females in the West and certain Asian countries like Japan recorded the largest decline. Many nations no longer meet the replacement rate of 2.1 births per female; in fact, many nations are well below the replacement rate. In Spain and Italy, for example, the rate hovers around 1.2. And according to a recent report in The Economist, countries ranging from China to Brazil to Tunisia face similar falling fertility numbers.

And that brings us back to those baby boomers, the largest generation in US history. They are aging. And the boomer phenomenon is not limited to the US. Though perhaps fewer in numbers, people born between 1946-64, particularly in Canada and Europe, are also referred to as boomers. Dutch dictionaries contain the term "baby boomers." And in the United Kingdom boomers are sometimes described as the "swinging sixties" generation, whereas in France they are often called "the protest generation."

By any sobriquet, this is a generation united by many factors: They are members of a population explosion that put the law of large numbers on their side, giving their generation great social, political, and economic clout. The irony here is that a generation that became so identified with social and political causes, particularly in the US, also became the wealthiest in history.

As was often repeated on Wall Street during the recent bull market, baby boomers have to plan for retirement. Until the market crashed, much of that planning entailed putting funds into equities, the only game that would provide enough bang to ensure a decent retirement.

Whether we agree with that assessment is a moot point. One thing is sure: As the millions who belong to this generation age, they will begin to slowly work their way through the health care system, using up billions of dollars of resources and services along the way.

Currently, only three ways exist to treat disease — surgery, medical devices, and drugs. Often some combination of all three becomes necessary. Surgery is costly and debilitating. Medical devices frequently have to be replaced and remain expensive. That leaves drugs. But big pharmaceutical firms currently are being treated as if they are the disease, rather than providers of possible remedies. Yet it seems clear that generic or knockoff manufacturers will not be able to meet the inevitable demand.

So if any real long-term investors are still out there, a pretty pessimistic place to start snooping around for bargains should be obvious. Hold your own pharmaceutical maximum pessimism bash. Despite the current gloom, it's one party that serious and patient investors will find both enjoyable and profitable.

Ron L. Ellison is a registered investment advisor and financial planner with RLE & Associates, Newport Beach, CA 92660. He can be reached at 949 261-1740, 877 455-9681, or RLEasset@aol.com.

Current and past articles from Working Money, The Investors' Magazine, can be found at Working-Money.com.





Ron L. Ellison

Ron L. Ellison is a registered investment advisor and financial planner with RLE & Associates, Newport Beach, CA 92660.

RLE & Associates has not added any product or service information to TRADERS' RESOURCE.
Company: RLE & Associates
Address: 3975 Birch ST.
Newport Beach, CA 92660
Phone # for sales: 949 261-1740
E-mail address: RLEasset@aol.com

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