Category Archives: Aging of the Population

Keys to July Retail Sales and Walmart Earnings Results

Keys to July Retail Sales and Walmart Earnings Results


Plus the Biggest Threat to the German Auto Industry

On this episode of the Thematic Signals podcast, we’re digging into the July Retail Sales and quarterly earnings results from Walmart as both confirm the hard-blowing tailwinds associated with our Digital Lifestyle, Middle-Class Squeeze, Aging of the Population and Cleaner Living Investing themes.





We also breakdown a recent article in The Wall Street Journalthat discusses how one aspect of our Cleaner Living investing theme — electric vehicles — could threaten the German economy. It’s the same structural shift that should have folks more than a little concerned about Tesla, both its business as well as its shares. All that and much more on this episode of the podcast. 

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

Resources for this podcast:

People older than 65 outnumber children under five

People older than 65 outnumber children under five

A new report from the United Nations highlights the fact there is no slowing down the aging process and the growing cohort of people over 65 years old across the globe. This is one of the key drivers behind our Aging of the Population investing theme, which focuses on the growing array of products and services that will cater to this demographic group. The UN report also calls out the upside down age  pyramid that will result given low fertility rates, which will also spur the demand for services as well as raise questions over how they will be paid for in the coming years.

The bottom line is this UN report clearly speaks to both the global tailwinds and headwinds associated with our Aging of the Population investing theme.

At the Osaka G20 summit in Japan, world leaders are grappling with one of the most challenging issues humanity faces today: We’re not getting any younger.

Last year, for the first time in human history, the number of people on Earth aged 65 or older outnumbered children under five, according to a recent United Nations report. People over 65 are now the world’s fastest-growing age group. Three decades from now, one-quarter of the population in Europe, the United States and Canada will be over 65.

“Historically low levels of fertility combined with increased longevity ensure that populations in virtually all countries and areas are growing older,” the report observed.

Aging populations place an enormous burden on the young, because there are fewer of them every year in relation to the old – fewer taxpayers to prop up health and pension plans, fewer consumers to drive a domestic economy, fewer children to offer comfort and support for elderly parents.

Different countries approach the question of aging differently, depending on attitudes toward family, elders, children and foreigners. “It depends on what kind of social structure you have,” Mr. Ishikane said. Developing societies face even greater challenges than developed ones, because they lack the resources to establish social safety nets for the elderly. “Each country has its own challenge.”

Source: People older than 65 outnumber children under five, putting burden on younger generation – The Globe and Mail

Ep 7. With the G20 in the Rearview Mirror, What’s Next

Ep 7. With the G20 in the Rearview Mirror, What’s Next



On this episode of the Thematic Signals podcast, Tematica’s Chris Versace digs into why investors should be watching in the month of July. Between the June quarter earnings season, the Fed and the latest economic data, there is no shortage of things investors need to watch. In Chris’s view that’s especially true given the potential for the Fed to NOT cut interest rates at its July monetary policy meeting, and for earnings guidance to be softer than Wall Street is expecting. We’ve also got several thematic signals, including ones for our Digital Lifestyle, Aging of the Population and the new Cleaner Living Index. If you listen carefully, Chris mentions not only one of his favorite companies for the second half of the year, but also how the Cleaner Living signal ties into the Tematica Research Cleaner Living Index. 

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

Resources for this podcast:

Weekly Issue: The Data Continues to Weaken

Weekly Issue: The Data Continues to Weaken


Key points inside this issue


  •  June quarter earnings season could reset second half expectations
  •  Introducing the Tematica Research Cleaner Living Index
  • Setting protective stop loss levels for the Select List 
  • We are issuing a Sell rating and removing both AXT Inc. (AXTI) and Energous Corp. (WATT) shares from the Select List 

And the data continues to weaken


If you’ve been paying attention to the financial media — be it on CNBC or Twitter — you’ve probably seen the news that the latest rash of economic data has come in weaker than expected. This includes a growing number of June data issued by the regional Federal Reserve banks as well as a drop in both June Consumer Confidence and May New Home Sales. We’ve also seen a sharp drop in the May Cass Freight Index and other similar indicators. 

Over the past several weeks, we’ve continued to see a growing amount of data come in below expectations, and arguably the best representation for this is found in the Citibank Economic Surprise Index, better known as CESI. As we can see in the below chart, that index shows the sorry state of economic data relative to expectations, which also explains the downward slope and slowing velocity depicted in GDP forecasts for the current quarter.


As I type this, the Atlanta Fed GDP Now reading for the June quarter sits at 2.0%, but I would be quick to call out it was last updated on June 18. This means several of this weeks’ weak data points have yet to be factored into that GDP forecast. By comparison, the New York Fed’s Nowcast reading for the June quarter is 1.39% as of June 21 – better in the sense that it is more up to date, but it’s still missing some of the most recent data. Both of those GDP forecasts will more than likely be revised lower, exacerbating the sharp slowdown relative to the March quarter’s GDP print of 3.1%.

When we look at the stock market, however, one might think things were going gangbusters given what is poised to be the best June in sometime. But it’s the next two charts that have me concerned for the upcoming June quarter earnings season. The first one shows how the market has performed despite the data showcasing a weakening economy. The second one shows second half EPS expectations for the S&P 500 group of companies remain above 10% compared to the first half. Take a look at the charts and let that last comment sink in. 


June quarter earnings season could reset second half expectations

Simply stated, the odds of the S&P 500 group of companies delivering that level of EPS growth in the back half of 2019 given the vector and velocity of both the domestic as well as global economy, with the impact of tariffs that are in place, and the lack of anything like the 2018 bottom line benefit that was tax reform are rather low in my opinion. Before the usual July deluge, this week we’ll get earnings from the likes of FedEx (FDX), Nike (NKE) and Select List resident McCormick & Co. Inside those reports, I’ll be listening for comments not only on their respective businesses, but also international demand, currency and tariffs. In my view, what we hear from these three companies and others will set the stage for what is to come in the following weeks. 

One recommendation I would make to subscribers is to hang onto the ProShares Short S&P 500 ETF (SH) shares that were added to the Select List back in December. While SH shares have moved against us as the market has moved higher in 2019, much like insurance when we’ll want to own them, it will be too late to buy them. 

With the Fed out of the way for now following last week’s meeting that signaled its more dovish bent, ahead of us we have the G20 summit and all eyes are now bracing for its outcome. Will Presidents Trump and Xi get US-China trade talks back on track? Will there be any new development to be had between the US-Iran? 

The answers to these questions and others will shape the start of the stock market in the second half of 2019. While I remain hopeful, the chatter we are hearing that includes White House officials now saying US-China trade talks could “go on for months or years.” The optimist in me hopes this is pre-game $#!+ talking, but better to hope for the best and prepare for the worst.

We did that last week with the Thematic Leaders and shortly we’ll do that for the Select List as well. First, however, I have something exciting to share with you… the unveiling of the Tematica Research Cleaner Living Index.

Introducing the Tematica Research Cleaner Living Index

Yesterday we debuted the Tematica Research Cleaner Living Index (CLNR), which as you probably guessed, is an index of publicly traded companies that reflects our Clean Living investing theme. There are more than 50 constituents in the index, including Clean Living Thematic Leader Chipotle Mexican Grill (CMG), that reflect the accelerating shift by consumers and businesses toward products and services that are better for you, your home, and the environment. We’ve culled the index’s constituents from our thematic database that spans more than 2,400 companies scored across our 10 investing themes. And because we wanted to isolate the companies with the greatest exposure to this theme, the index’s constituents are those companies that derive more than half of their sales or profits from Clean Living tailwinds. 

The formal press release announcing the index can be read here. Subscribers should expect to hear much more about the index in the coming weeks in a number of updates that include price action, Thematic Signals, and other articles. Like other indices, we view Cleaner Living as a living, breathing thing that will change over time as new companies debut and companies pivot their business into the Clean Living theme tailwind with new products or M&A activity. That M&A activity could also lead to companies being removed from the index. As we’ve seen in recent quarters with the takeout of SodaStream by PepsiCo (PEP) or Cava Grill acquiring Zoe’s Kitchen, companies are indeed using that strategy to accelerate their make over. There should be no shortage of Cleaner Living index related items to share and discuss.

With that in mind, as I write this, I am winging my way toward Manhattan where over the next two days I’ll be appearing on a number of programs from The First Trade on Yahoo Finance! to Making Money with Charles Payne on Fox Business and others across Cheddar, the TD Ameritrade Network and other outlets. As we get the clips, I’ll be sure to share them via Twitter (@Chrisjversace). 

Get ready, because when it comes to the Cleaner Living index, we are just getting started.


Tematica Investing

Setting protective stop loss levels for the Select List

Last week we set or reset stop loss levels for the Thematic Leaders, and with the preponderance of data coming in weaker than expected this week, I’m going to do the same for positions on the Select List as follows:

  • Apple Inc. (AAPL) – $160                            
  • Applied Materials, Inc. (AMAT) – $34                                           
  • The Walt Disney Co.  (DIS) – $111              
  • Alphabet (GOOGL)- $900                         
  • ETFMG Prime Cyber Security ETF Safety & Security (HACK) – $31     
  • International Flavors and Fragrances (IFF) – $117
  • McCormick & Co. (MKC) – $123
  • Universal Display (OLED) – $150   
  • AT&T  (T) – $26
  • United Parcel Service (UPS) – $85
  • USA Technologies (USAT) – $6 


Removing AXTI and WATT shares from the Select List

As we make these moves, we’ll also cut bait on shares of AXT Inc. (AXTI) as well as Energous Corp. (WATT). Both positions have been hard hit, despite the thematic potential associated with 5G and wireless charging. With key AXT customers, such as Skyworks (SWKS) and Qorvo (QRVO) slashing their outlooks given the ban on Huawei, odds are rather high AXT’s business will be impacted. Similarly, with Energous, with Apple opting to not enter the wireless charging market, and a longer design to product conversion cycle unfolding we’ll look to preserve existing capital by those shares as well. 

  • We are issuing a Sell rating and removing both AXT Inc. (AXTI) and Energous Corp. (WATT) shares from the Select List 



Aging of the Population a concern for Italy, Germany, Japan, and other OECD countries

Aging of the Population a concern for Italy, Germany, Japan, and other OECD countries

If a picture says a thousand words, then in our view here at Tematica the below chart is simply screaming about the productivity and economic headwind to be had in the coming years associated with our Aging of the Population headwind. While some countries within in the OECD will see a surge in the working age population and benefit from it, those that do not, such as Italy, Germany, Korea, and Japan, will face several economic hurdles. Country-specific ETF buyers beware.

 

Infographic: Decline of Working Age Population Concern for Some OECD Countries | Statista You will find more infographics at Statista 

Within the OECD, Korea, Japan, Germany and Italy are among the countries most heavily affected by a decline of their working age populations. Taking each country’s population between the ages of 20 and 64 in the year 2000 as a base, the OECD calculated that by 2050, that population would only be around 80 percent of its original size in Korea and Italy. In Japan, the country most heavily affected, that number would be just over 60 percent.

For the OECD in total, the size of the working age population is actually expected to increase and be at 111 percent of the 2000 figure in 2050. The growth is driven by countries with strong birth rates and large populations, like Australia, Turkey and the United States.

Source: • Chart: Decline of Working Age Population Concern for Some OECD Countries | Statista

The Elderly will make hospitals a growth industry

The Elderly will make hospitals a growth industry

As the saying goes, there is no fighting Father Time. There is also the fact that as we age, our bodies suffer from wear and tear. Put those two simple facts together and the demographic shift we are seeing unfold before us that reflects our Aging of the Population investing theme likely means hospitals as well as out surgery centers are poised to become growth industries.

People over 65 represent roughly 16 percent of the American population, but account for 40 percent of patients undergoing surgery in hospitals — and probably more than half of all surgical procedures.

Those proportions are likely to increase as the population ages and more seniors consider surgery, including procedures once deemed too dangerous for them.

As older people undergo more operations, the coalition has focused on the results. Perhaps unsurprisingly, older surgical patients often fare worse than younger ones.

Patients in their 80s undergoing major surgery for lung, esophageal and pancreatic cancer have substantially higher mortality rates than those aged 65 to 69, another study found; they’re also more likely to go to nursing homes afterward.

Why? Older patients often have chronic health problems, aside from whatever the surgery is supposed to fix, and take long lists of drugs. The hospital itself, where they risk acquiring infections or losing mobility after days in bed, can endanger them.

Source: The Elderly Are Getting Complex Surgeries. Often It Doesn’t End Well. – The New York Times

Welcome to the New Thematic Signals Podcast

Welcome to the New Thematic Signals Podcast


Welcome to the Thematic Signals podcast, where we look to distill everyday noise into clear investing signals using our thematic lens and our 10 investing themes. Every week we not only discuss key events that are shaping the stock market, but we also look at key sign posts for the changing economic, demographic, psychographic, and technological landscapes that are driving the structural changes occurring around us. 

On this episode, with retailer earnings in the spotlight, we dig into which ones are winning the fight for consumer wallet share and those that are losing. The implications are huge given that retail accounts for nearly 20% of the S&P 500 and roughly 16% of US GDP.  Those that are winning the wallet share fight, such as Target, Hibbett Sports, Walmart, TJX Companies. Best Buy and others are leveraging our Middle-Class Squeeze, Digital Society and to a lesser extent our Aging of the Population investing theme. We also talk about what investors should be looking for next as earnings season winds down and share some of the latest signals for our 10 investing themes.

Have a topic or a conversation you think we should tackle on the podcast, email me at cversace@tematicaresearch.com

And don’t forget to subscribe to the Thematic Signals Podcast on iTunes!

Resources for this podcast:

Unity Biotech using molecular biology to target aging

Unity Biotech using molecular biology to target aging

As we have long said, thematic intersections can pave the way for pronounced transformation as two tailwinds change the existing landscape. As we continue to age and live longer, companies are examining new solutions to improve those aged lives. In the past, we’ve seen those take on a variety of forms, and now we are seeing it start with molecular biology. These dual waves that cross our Aging of the Population and Disruptive Innovators investing themes will be something to watch in the coming years.

Unity is among a small group of companies, including the Google health-care subsidiary Calico, that are attempting to harness advances in molecular biology to increase the human health span, the length of time that a person is healthy. The idea, David says, is not just to prolong life but to allow older people to live healthier lives. “We are not purely a senolysis company. We will also be exploring alternative mechanisms that can extend human health span,” he says.

The reaction from the pinstriped crowd in New York—which included analysts from Citigroup, Goldman Sachs, and Morgan Stanley—was respectful but muted. After all, only about 12 percent of drugs that enter clinical trials are successful, according to a 2018 report by the Tufts Center for the Study of Drug Development. And the science upon which Unity has based its approach is largely untested in humans; scientists have only recently begun to understand the links between senescence and the diseases associated with aging.

Osteoarthritis of the knee is a painful condition in which the cartilage between the bones wears away. In 2018 there were 725,000 knee replacements in the U.S. If successful, Unity’s drug for the condition could reduce the need for surgery while generating as much as $6.7 billion a year in revenue, according to a recent Goldman Sachs Group Inc. research note on the company.

Source: Unity Biotech’s Osteoarthritis Injections Could Fight Aging – Bloomberg

The Middle Class Squeeze and Aging of the Population Themes Converge Under the Golden Arches

The Middle Class Squeeze and Aging of the Population Themes Converge Under the Golden Arches

According to a report by the Economic Policy Institute (EPI):

  • The average household aged 56-61 has amassed a $163,577 nest egg.
  • Over the course of a 20-year retirement, $163,577 amounts to just $8,178 a year, or $681 a month, of income.
  • The median savings for that age group is just $17,000, which means a large number of workers have far less than the average.
  • An estimated 41% of households aged 55-64 have no retirement savings at all.
  • An estimated 21% of married Social Security recipients and 43% of single recipients 65 and over-rely on their monthly benefit checks to provide at least 90% of their income.

Aside from the current state of Social Security, what makes this problem even direr is the fact the aging Baby Boomers of today are living longer than the generations that came before them. This means they will need to stretch their savings even further, while potentially cutting spending even more than expected — a blow to the consumer-led domestic economy.

When placed in front of this backdrop, it makes this recent CNN report about fast-food chain McDonald’s working with AARP to recruit older employees to fill its ranks amid historically low unemployment rates entire unsurprising:

The fast food chain [McDonald’s] said on Wednesday that it is partnering with AARP, a nonprofit interest group for aging Americans, to help attract workers who are aged fifty or above. That demographic makes up just 11% of the workforce at corporate-owned stores, according to the company.McDonald’s (MCD) hopes that the new recruitment tactic will attract workers for breakfast and lunch shifts, in particular. Now, McDonald’s tends to attract younger workers who either can’t work mornings because of school, or prefer not to start early in the day. Hiring older workers is also a way to attract talent as US unemployment, now at 3.8%, hovers near all-time lows.McDonald’s has posted positions to its AARP site. The process is being piloted in Florida, Illinois, Indiana, Missouri and North Carolina, with a national rollout planned for this summer. McDonald’s would like to fill 250,000 jobs.

Source: McDonald’s is partnering with AARP to hire older employees – CNN

 

 

Walmart Store Revamp Checks Several Thematic Boxes

Walmart Store Revamp Checks Several Thematic Boxes

News coming out of Bentonville, AR this week details a series of store enhancements and renovations to 500 Walmart stores in the coming years.  As we read through the discount retailer’s plans, the “ding” buttons were going off in our heads as many of them directly touch upon our investment themes at Tematica Research.  At a reported total cost of $11 billion, these plans are set to have a major impact on both store operations and the customer experience of shoppers. Here is a quick rundown of what we learned through an article on Digiday.com:

Middle-Class Squeeze: while Walmart’s rise can be directly attributed to the financial struggles of the middle class in the United States in recent years as families look to stretch their dollars as much as possible, some might view several of these store enhancements as only contributing to the cause by eliminating the need for many of their store employees:

The retailer said it’s doubling down on automation to make store operations more efficient, including the addition of 1,500 autonomous floor cleaners; 300 autonomous shelf scanners; 1,200 unloaders that scan and sort items unloaded from trucks; and 900 pickup towers, or vending machines that dispense online orders within stores. Read More

Digital Lifestyle: Much has been written about Walmart pivoting its business model to compete with the rise of Amazon.com. Many of those moves have been focused on the beefing up of its own online capabilities through the acquisition of jet.com, Shoebuy, Bonobos and other moves. But included in its upcoming store overhaul are several moves that focus on Walmart’s arrow into its quiver in the online battle — physical stores for quick delivery and returns:

By the end of the fiscal year, Walmart expects to have a total of 1,700 pickup towers, 3,100 grocery pickup locations and 1,600 grocery delivery locations. “We’re using the stores as that connector to be able to serve customers how and whenever they want,” said Walmart spokesperson Delia Garcia. “Customers can order online and use [in-store] pickup towers, and some customers want to browse and look for things, and we want it to be pleasant and convenient.”Read More

Digital Infrastructure / Disruptive Innovators: Obviously, all of these robots,  automation tools and e-commerce solutions will also draw heavily from the Digital Infrastructure and Disruptive Innovators theme as they will demand significant amounts of bandwidth and robotics. Keep in mind, the $11 billion planned investment is to overhaul 500 Walmart stores — the company has over 5,000 stores worldwide. This investment is just the tip of the iceberg.

Aging of the Population: Almost as an aside, two enhancements that were mentioned that while not specifically tied to this theme, appear to be driven by a more senior population are “adding new signage” and “pharmacy department makeovers that will include private consultation rooms”.  More details will have to be gathered but our guess is that Walmart is recognizing that its pharmacy departments are going to be under tremendous demand as more and more Baby Boomers head into their senior years. Also, as a nod back to the battle against Amazon and its acquisition of Pillpak, having physical pharmacies is to its advantage over online-only.