The Story the Media is Missing

“Europe is unraveling …” or so the story goes 24 hours a day at various levels of intensity.  It’s not as though the media has a slight bent toward sensationalism or something – that’s a joke in case you’re from out of town. There’s a very exciting story that is plain on the face of it.

I’ll give you a hint: the population of the Eurozone is 333 million people. The collective population of China, India, Brazil, Indonesia, the Philippines, and Turkey is 3.7 billion. Or, if you aren’t doing the math already, more than 11x times the Eurozone.

My love goes out to Europe, but let’s take a few steps back to some economic principles here: spending = income = spending = income = spending.

Let’s assume a very bad scenario with Europe and that their spending (or consumption) drops by 20% (this would be on par with The Great Depression). Which for “back of the envelope” numbers would be like instead of there being 333 million spenders suddenly being 266 million spenders (a loss of 66.6 million spenders).

However, in a land far far away, a gargantuan middle class is emerging among a sampling pool of 3.7 billion people (and there are more, but I’m just sticking to the listed countries). If 66.6 million spenders are created by their rapid emergence into higher standards of living, the two global numbers would cancel each other out. And what percent of the 3.7 billion people would be needed? 0.018% That’s basically one out of every 5,000 people.

But who’s to say that those 66.6 million Eurozone consumers stop spending indefinitely? Their problems will likely get fixed, eventually and we’ll go back to this highly complex economic equation:

spending = income = spending = income = spending

As the magic of this equation works out, jobs are created, standard of living goes up and the equation feeds on itself. When investing money or decidedly not investing money, try to ask yourself one question: 10 years from now, will the world be buying more stuff or less stuff? Okay, how about 20 years, 30 years, etc.?

Let’s return to our equation: spending = income = spending = income = spending

Now the more important question: What will people be buying? As in, name some brands. As a cue, think about what brands you’ve consumed today. What did you have for breakfast? Where did you fill up your gas tank? Who’s your cell phone carrier? If our belief is that spending will be higher in the future and our assumption is that people will still be buying some of the same brands we are spending money on, does this not give some investing direction? While there is no way to predict which stock will do well and which won’t, this is one way to help determine where to start looking.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing in securities, including stocks and bonds, is subject to market fluctuation and possible loss of principle. No strategy can assure success or protect against loss.