Equities

Highlights Portfolio Strategy We opt to stay patient and refrain from deploying fresh capital especially in the tech sector in the near-term; a better entry point will likely materialize between now and the end of the year. The softening demand backdrop that is weighing on selling prices, the rekindling of the US/China tech-related trade war and the risk of a reflex rebound in the US dollar, all warn to shy away from semi cap stocks. A balanced outlook keeps us on the sidelines in the S&P home improvement retail (HIR) index. Recent Changes There are no changes to the portfolio this week. Table 1 Feature Equities tried to regain their footing last week, but risks still lingering on the (geo)political front should sustain the tug of war between bulls and bears and rekindle volatility. While monetary and fiscal policies will remain loose, the intensity of easing is waning as both the Fed’s impulse (i.e. second derivative) of asset purchases has ground to a halt and Congress has hit a stalemate over the next round of stimulus. Crudely put, the thrust of monetary and fiscal policies is at heightened risk of shifting from stimulative to contractive (Chart 1). As a result, we remain patient with fresh capital and will wait to deploy it when the dust settles hopefully by the end of the year. Turning to equity market internals and other high frequency financial market data is instructive in order to get a clearer picture of the direction of the broad equity market. The value line arithmetic and geometric indexes and small cap stocks that led the March 23 SPX trough are emitting a distress signal (Chart 2). Chart 1Running Out Of Thrust Chart 2Market Internals... Drilling deeper on a sector basis, hypersensitive chip stocks, energy shares, and discretionary versus staples equities will likely weigh on the prospects of the broad equity market (Chart 3). The VIX index, the vol curve and the yield curve, all excellent leading indicators of the S&P 500, have crested and warn that the shakeout phase has yet to run its course (VIX shown inverted ,Chart 4). Chart 3...Say It Is Prudent... Chart 4...To Remain On The Sidelines Trying to quantify the SPX drawdown, we turn to CBOE’s equity put/call (EPC) ratio. The EPC ratio is nowhere near recent extreme readings. SPX pullbacks since the early-2018 “Volmageddon” have corresponded to significantly higher EPC ratio readings. In the past 10 such iterations, the median EPC ratio has been 0.86, the mean 0.93, with a range of 0.77 to 1.28 (Table 2). Currently, the EPC ratio is hovering near 0.58 suggesting that downside risks persist (EPC ratio shown inverted, Chart 5). Chart 5Downside Risks Persist Table 2Equity Put/Call (EPC) Ratio During Pullbacks Since 2018 Finally, the commodity complex is also firing warnings shots. Lumber has collapsed nearly $300/tbf from the recent peak, oil is trailing gold bullion and silver is also cresting versus the yellow metal, iron ore is petering out and the Baltic dry index is wobbling. True, copper and materials stocks are holding their own, but overwhelmingly commodity market internals are waving a yellow flag (Chart 6). Chart 6Commodity Yellow Flags Netting it all out, we opt to stay patient and refrain from deploying fresh capital especially in the tech space in the near-term; a better entry point will likely materialize between now and the end of the year. This week we reiterate our underweight stance in a niche technology index and shed more light on our recent downgrade to neutral of a key consumer discretionary subgroup. Chip Equipment Update: Tangled Up In The Trade War We remain committed to our intra-tech strategy of preferring defensive software and services tech names to aggressive hardware and equipment tech stocks. In that light, we reiterate our underweight stance in the niche S&P semi equipment index. Recent news of the Trump administration’s potential tightening of the noose on Chinese chip company SMIC (the country’s largest foundry) was a net negative for US semi cap names, similar to export restrictions of American technology to Huawei was a net negative for US semi cap names. As a reminder, these manufacturers count China as one of their largest export market alongside Taiwan and South Korea. Thus, this flare up in the US/Sino trade war bodes ill for semi cap companies’ future sales and profit growth projections (Chart 7). There are high odds that relative share prices have plateaued earlier this month and a fresh down cycle has commenced. Under such a backdrop, this hyper-sensitive manufacturing group will likely overshoot to the down side as is evident in the historical tight correlation with the ISM manufacturing survey: these violent oscillations are warning that a cooling off in the ISM will be severely felt in this niche manufacturing intense index (Chart 8). Chart 7Lofty Expectations Chart 8Violent Oscillations On the global demand front, there is an element that COVID-19 is stealing sales from the future and bringing demand forward. Already global semi sales are rolling over, and a couple of industry pricing power proxies are deflating at an accelerating pace: Asian DRAM prices are topping out in the contraction zone and Taiwanese export prices are sinking like a stone, warning that a deficient demand down cycle will squeeze semi cap profit margins (Chart 9). Importantly, Taiwanese tech capex, which TSMC dominates, has crested, warning that all the euphoria behind 5G deployment and uptake is likely baked in the relative share price ratio. The implication is that semi cap names remain vulnerable to any global 5G-related hiccups (top panel, Chart 10). Chart 9Waning Selling Price Backdrop Chart 10Cresting Finally, the tight positive correlation between Bitcoin prices and the relative share price ratio remains intact. Were a knee-jerk rebound in the US dollar to knock down Bitcoin, at least temporarily, it would serve as a catalyst to shed chip equipment stocks (bottom panel, Chart 10). Moreover, 90% of the industry’s sales originate abroad, thus a rise in the greenback would eat into their P&L via FX translation losses. Adding it all up, a softening demand backdrop that is weighing on selling prices, the rekindling of the US/China tech-related trade war and a reflex rebound in the US dollar, all warn to shy away from semi cap stocks. Bottom Line: Stay underweight the S&P semiconductor equipment index. The ticker symbols for the stocks in this index are: BLBG S5SEEQ – AMAT, KLAC, LRCX. Home Improvement Retailers: Stay On The Sidelines Two weeks ago our trailing stop was triggered in the S&P home improvement retail index (HIR) and we monetized gains of 15% since the mid-April inception and moved to the sidelines. Today we reiterate our benchmark allocation in this consumer discretionary sub group. Clearly, HIR was a major beneficiary of the lockdown as the US and Canadian governments deemed these retailers “essential” and allowed them to stay open during the peak of the pandemic. These Big Box retailers saw their sales soar as the fiscal easing package replenished consumers’ wallets, and coupled with the lockdown, caused a surge in DIY remodeling activity. Our portfolio also greatly benefited from the stellar performance of the S&P HIR index, as existing home sales staged a significant comeback and inventories of homes for sale receded substantially thus further tightening the residential real estate market (top & middle panels, Chart 11). As reminder, historically a vibrant housing market is synonymous with handsome returns in relative share prices and vice versa. But now a number of stiff headwinds, which our HIR model encapsulates, signal that a lateral digestive move is in store in the coming months (Chart 12). Chart 11Unsustainable Front Running Chart 12Stiff Headwinds First, a repeat of the spike in demand for home improvement projects is highly unlikely, especially given that demand was brought forward. Also during the autumn and winter months there is a natural slowdown in the take-up of remodeling projects until the spring home selling season arrives. Second, the industry’s sales-to-inventories (S/I) ratio is literally off the charts (bottom panel, Chart 11). An inventory build-up and easing in demand will bring back the S/I ratio back to a more reasonable level. Lastly, lumber prices have taken a beating of late collapsing from over $900/tbf to below $600/tbf. This drubbing of this economically hypersensitive commodity directly cuts into HIR earnings. These Big Box retailers make a set margin on lumber sales so as prices fall they take a big bite out of profits (bottom panel, Chart 13). Nevertheless, a few offsets prevent us from turning outright bearish in this early cyclical retailers. Namely, the industry’s profit growth bar is on a par with the broad market and thus does not pose a large hurdle to overcome. Importantly, given that HIR earnings have kept pace with the massive run-up in stock prices (second panel, Chart 14), they have kept relative valuations at bay. While, the S&P HIR 12-month forward P/E trades at a market multiple, the relative forward P/E changes hands at a 20% discount to the historical mean. Thus, HIR enjoy a significant valuation cushion (bottom panel, Chart 14). Chart 13Timber! Chart 14But There Are Powerful Offsets Finally, the Fed just explicitly committed to stay on the zero interest rate line until 2023! This easy monetary policy as far as the eye can see is a powerful tonic to early cyclical and interest rate-sensitive home improvement retailers (fed funds rate shown inverted, top panel, Chart 14). Netting it all out, a balanced outlook keeps us on the sidelines in the S&P HIR index.  Bottom Line: Stick with a benchmark allocation in the S&P home improvement retail index. The ticker symbols for the stocks in this index are: BLBG S5HOMI – HD, LOW.     Anastasios Avgeriou US Equity Strategist anastasios@bcaresearch.com     Current Recommendations Current Trades Strategic (10-Year) Trade Recommendations Size And Style Views July 27, 2020 Overweight cyclicals over defensives April 28, 2020  Stay neutral large over small caps June 11, 2018 Long the BCA Millennial basket  The ticker symbols are: (AAPL, AMZN, UBER, HD, LEN, MSFT, NFLX, SPOT, TSLA, V). January 22, 2018 Favor value over growth

Bank Credit Analyst

“Based on a broad set of indicators, it is hard not to see a certain amount of daylight between risky asset prices and economic prospects” – Claudio Borio, Head of Monetary and Economic Department, BIS, September 14, 2020 A pandemic, the resulting sharpest downturn in modern times and soaring government debt have made 2020 an annus horribilis for the US and world economy. Growth has rebounded strongly as economic lockdowns have ended, but most forecasts suggest that the level of activity will not return to its pre-virus level before the end of next year. That implies a lingering problem of high unemployment and there will be ongoing concerns about the eventual consequences of policymakers’ extreme monetary and fiscal actions. The long-run outlook for the US economy was already challenging before Covid-19 appeared on the scene. And this year’s events cannot have improved prospects relative to pre-crisis expectations. Thus, it is reasonable to wonder why the S&P500 hit a new all-time high in early September and currently is only slightly below that level. Is it a classic case of irrational exuberance or a sign that the economic outlook is much better than generally assumed? If we cannot come up with a convincing case for the latter then irrationality is left as a likely explanation. The sharp decline in interest rates certainly supports higher equity valuations, but a bull market that depends largely on stimulative monetary policy is problematic. The Stock Market Is Not The Economy, But… Finance theory states that equity prices should reflect the discounted long-run stream of expected dividend payments. In turn, those payments should be correlated with earnings growth which one would expect to have a close relation to underlying economic conditions. While prices often deviate significantly from so-called fundamentals, it is perfectly reasonable to assume a long-run correlation between the stock market and the performance of the economy. In practice, there is a loose relationship with occasional large deviations. Chart 1The US Economy vs. The Market Chart 1 shows the five-year annualized growth in US real GDP versus both real total returns from the S&P500 and real earnings.1 In making these comparisons, there are a few issues to consider. The stock market only represents quoted companies while GDP also includes the economic contribution of unincorporated businesses and the government. The sectoral composition of the S&P 500 is different from that of businesses at large. Many large US companies earn a significant share of their earnings from overseas operations that may be uncorrelated with domestic economic conditions. The price performance of stocks can reflect large swings in valuations driven by investor sentiment rather than fundamentals. Starting with the first point, corporate sector GDP accounts for only slightly more than half of total GDP, moving within a range of around 55% to 60% for the past 50 years (Chart 2). Yet the real growth in corporate GDP has moved in lockstep with that of total GDP. And aggregate sales of S&P500 companies have broadly tracked the swings in GDP. Thus, it cannot be argued that quoted companies can somehow miraculously avoid the ups and downs of the overall business cycle. The economy is based on a complex set of interconnected relationships and it would be remarkable if the performance of the country’s major corporations could deviate significantly from the economy at large for any length of time. Chart 2The Corporate Sector And Total GDP There certainly is an issue with the second point because the sectoral breakdown of the S&P500 does not exactly match that of the overall economy. While that does not always protect the stock market from general economic trends, it can help explain occasional large equity price moves. Table 1 shows the sector composition of the S&P500, weighted by market capitalization, sales and earnings, versus the composition of GDP. It is difficult to break down GDP exactly in line with the sector classifications of the market, but we have done as close a job as the data allows. Notable differences between the structure of the market and GDP are the relative weightings of the health care, industrials and information technology sectors. The following explanations seem plausible. Table 1Sector Composition: A Comparison For health care, the GDP weighting shown in the table is understated because it also is a significant part of the government sector’s contribution via Medicare and Medicaid. Other data show that total spending on health care accounts for around 18% of US GDP, broadly in line with the S&P index weighting. The large weighting of industrials in GDP compared with its share of the equity index probably reflects the fact that this broadly-defined group has a very large number of small and unquoted companies. On that point, it should be noted that unincorporated businesses account for 21% of national income – a non-trivial share. Last, but not least, there is the huge discrepancy in the weightings of information technology. This is a bit harder to explain, but two reasons come to mind. First, the S&P index market cap weighting has been boosted by the strong share price performance of these companies and high valuations thus flatter their index importance relative to underlying business activity. The IT weights based on sales and earnings are much lower, but still significantly exceed that in GDP. Secondly, some of these companies (Apple being a prime example) produce very little in the US relative to what they sell in the country. As GDP measures domestic output, this affects the relative weightings. Chart 3Growth In Overseas vs. Domestic Profits Let’s explore the issue about overseas earnings more closely. According to national income data, 45% of the corporate sector’s after-tax profits come from overseas earnings. And that is broadly consistent with the overseas share of sales for S&P500 companies. While the relationship is not perfect, the growth of overseas profits roughly tracks that of domestic profits (Chart 3). And where there have been large divergences, such as in 2009, that often has reflected large swings in oil prices. Overall, it hard to make the claim that the large share of earnings coming from overseas has been a factor supporting the strong performance of stocks relative to the underlying economy. This is especially true given that the US has performed better than most other economies in recent years and the dollar has been a strong currency. In sum, our analysis does not give compelling support to the idea that the fundamental performance of large quoted companies can sustainably diverge from that of the underlying economy. But that does not mean that share prices cannot deviate because of large swings in valuation. Is The US Equity Market Overvalued? This should be a simple question to answer, but often is not. Alternative approaches to valuation are sometimes in conflict and that is the current situation. Various valuation measures are shown in Chart 4 with the following observations. Chart 4AMeasures Of US Equity Valuation Chart 4BMeasures Of US Equity Valuation All the measures based on earnings (trailing, forward and cyclically-adjusted) suggest that the market is very expensive. While current earnings are affected by the economy’s second-quarter collapse, there remains considerable uncertainty about the speed of recovery. The current forward price-earnings ratio (PER) assumes that earnings will increase by around 30% over the next 12 months and that could prove to be optimistic. The market also looks significantly overvalued based on the ratios of price-to-book, price-to-sales and total market capitalization to GDP. While the valuation of the aggregate index has been boosted by the exceptional performance of the technology sector, it is important to note that the ratios of price to trailing earnings and to sales also are very elevated using the medians of 58 sub-groups, as calculated by BCA’s US Equity Strategy Service (Chart 5). In other words, this is not a story about overvaluation simply reflecting the hot technology sector. Chart 5Overvaluation Is Not Just About Technology The market looks much more attractive when comparing dividend and earnings yields with the returns available on cash and bonds. This is the so-called TINA argument (there is no alternative). It is hard not to prefer stocks when the dividend yield is above the yield on long-term government bonds. During the market overshoot of the late 1990s, the dividend yield was 500 basis points below the 30-year Treasury yield, highlighting that stocks were in a very risky phase. Moreover, the current environment of unusually low interest rates is unlikely to end any time soon. The Federal Reserve’s newly-released projections indicate that interest rates are expected to remain at current levels at least through the end of 2023. The Fed has made it abundantly clear that it is prepared to take risks with inflation in order to support a revival in economic activity. It is relatively straightforward when the different valuation metrics are all giving the same message, as was the case in the late 1990s. Even then, the market overshoot lasted longer and became more extreme than generally expected. Our composite valuation indicator takes account of 10 different measures and currently supports the idea that the market is indeed very expensive (Chart 6). Chart 6BCA Equity Valuation Indicator It currently is very difficult for institutional investors to favor fixed-income instruments over a higher-yielding equity market. However, there is no free lunch here. We cannot ignore the argument that low interest rates reflect a very bleak long-run outlook for economic growth and thus for earnings and stock prices. The secular stagnation view put forward by Larry Summers looks even more apposite today than when he outlined it several years ago. We are fortunate to have Larry as the opening speaker for our virtual Investment Conference on October 6th and it will be extremely interesting to hear his latest thinking. Some Thoughts On The Economic Outlook Equities are a long-duration asset so it makes sense to consider valuations in the context of the long-run economic outlook rather than the near-term ups and downs of activity. Of course, short-run economic moves do affect investor sentiment so cannot be ignored. The near-term outlook is extremely cloudy because of uncertainty about the future path of the pandemic. While the virus appears to have become less virulent, infection rates could climb sharply over the winter months as schools re-open and people spend more time indoors. In addition, there are doubts about the scale and timing of much-needed additional government stimulus. Chart 7Mixed Data On The US Economy Some recent data have been impressively strong. The value of retail sales has surpassed pre-virus peaks as have new and existing home sales (Chart 7). On the other hand, manufacturing and construction output and overall employment remain far below previous peaks. And we have yet to see the impact of the ending of the $600 a week income support. There are legitimate concerns that early 2021 will see a surge in home evictions and a marked increase in small business bankruptcies. Most likely, the economy will experience a bumpy and moderate recovery after its post-lockdown strong third-quarter growth. The Fed forecasts US growth of 4% in 2021 after a 3.7% drop this year and the OECD’s latest projections are similar. That still means that it will take until the end of 2021 before real GDP gets back to its end-2019 level. And there are downside risks to that forecast if the virus remains a lingering problem. Our conference on October 6th will have what is sure to be a lively debate about the US economic outlook between Ed Yardeni and Dave Rosenberg. These two very smart economists have a very different take on how things are likely to play out and what it means for the markets. This debate will follow the presentation by Larry Summers and after that, Peter Berezin, our Chief Global Strategist, and myself will discuss our views and will be open for audience questions. Should be very interesting! Let’s talk about the longer-run economic outlook. As noted at the outset, it was less than inspiring even before the virus arrived on the scene. The two drivers of long-run economic performance are demographics and productivity and the growth in both has been trending lower. Chart 8Demographics Are A Problem The demographics story is straightforward and essentially locked in place. A falling birth rate means that the working-age population will rise at a meager 0.2% a year over the next ten years compared with more than 1% a year in the 1980s, 1990s and 2000s. Moreover, growth is projected to remain low in subsequent decades (Chart 8). And even these forecasts may be optimistic if the current antipathy toward immigration leads to a more closed-door stance. Demographic trends not only imply a slow-growing workforce (impacting potential GDP) but also create a worsening picture for government finances. An aging population boosts spending on health care and pensions when the number of taxpayers is growing very slowly. This shows up in a dramatic drop in the ratio of the working-age population (i.e. potential taxpayers) to those aged 65 and above.2 This is happening when government finances are already in dire straits and implies that future tax rates can only go higher, regardless of which political party is in power. The issue of productivity is more contentious because it is hard to measure, and future trends are less predictable than for demographics.3 Nevertheless, the data present a relatively clear picture: the growth of output per hour in the non-financial corporate sector has slowed markedly after a tech-driven spurt in the second half of the 1990s (Chart 9). We show the trend as a five-year growth rate to smooth out the short-term noise in the series. Chart 9Productivity Growth Has Slowed We discussed the outlook for productivity in a recent Special Report and highlighted some worrying trends.4 These include weak growth in business investment, a retreat from globalization, increased government involvement in the economy and friction caused by new pandemic-related protocols to protect the safety of customers and workers in several industries. On a more positive note, the virus has forced many businesses to streamline their operations and the move to remote working should boost productivity in some cases. What about the issue of technological advances such as artificial intelligence (AI) and autonomous vehicles? These clearly have the potential to boost productivity in many areas but with a caveat. Previous major technological breakthroughs (often called general purpose technologies or GPTs) such as steam power, the internal combustion engine, electricity, and the internet had major impacts on both supply and demand. Generally, they were associated with creating completely new activities. For example, steam power led to the locomotive which in turn allowed the opening of the country and the movement of goods to distant markets. Similarly, the automobile led to the development of the suburbs and the associated demand for housing and related services. More recently, the internet boosted the demand for a wide range of tech goods and services. While that is still ongoing, its peak effect has passed, helping to explain the decline in productivity growth from late-1990s level. In contrast, a lot of current ‘new’ technologies simply are associated with doing existing tasks more efficiently (3-D printing would be an example). That is still important but not on the same scale as GPTs. There is no doubt that AI will be a big disruptor in many sectors but its impact on demand is less clear. Maybe one day all households will have a domestic robot but that is still far enough away to be in the realm of science fiction. The bigger near-term impact will be job displacement. And the same can be said for autonomous vehicles. The demand for new self-driving cars will rise, but these will simply replace gas-powered ones and perhaps the overall number of vehicles on the road will decline. In sum, there will be both positive and negative forces acting on future productivity growth and any predictions need to be treated with caution. Nonetheless, a base case should probably assume any improvements will be relatively modest. Finally, any discussion of long-run economic prospects cannot ignore the alarming rise in government debt. The US was already running $1 trillion federal deficits before this year’s crisis led to a further extraordinary explosion of red ink (Chart 10). Chart 10Soaring Government Debt Current large deficits are not fazing investors. In the past, the spread between 30-year and 10-year Treasurys widened as the deficit rose, but this relationship has weakened recently (second panel Chart 10). Fed buying of bonds may have had some impact, but it also reflects the weak economy and low inflation. It is hard to know at what point investors will take fright at US fiscal trends. The experience of other countries that faced sovereign debt crises suggests problems can arrive with little advance notice. One day investors seem complacent and the next they are running scared. The dollar’s status as the world’s main reserve currency gives the US more protection than other countries had when facing debt problems. And central banks’ willingness to be the bond buyers of first and last resort gives debt burdens more room to grow than in the past. However, debt arithmetic is relentless and will turn very ugly when bond yields eventually rise. It is futile to try and pin a date on when bond vigilantes might reassert themselves in the US. But it will happen at some point. Moreover, even before that happens, there will be political pressure to do something about soaring debt levels. Even without a market revolt, the burden of increased spending on entitlements and debt servicing will force the government to pursue austerity. Taxes will rise and spending growth will be curtailed. That is a further reason to be cautious about economic prospects. Increased debt is a way to bring spending forward but unless the money is used to invest in productive assets, the process eventually goes into reverse. Unfortunately, the surge in US government borrowing has been used to prop up consumption rather than to finance capital spending. The short- and long-run economic outlook would have been worse if there had not been a powerful fiscal response. Consumption would have suffered an even sharper decline with a catastrophic impact on employment, profits and capital spending. In that sense, the government really had no choice: the health of government finances becomes irrelevant in the midst of a pandemic-related economic collapse. Market Implications There are several explanations for the remarkable strength of the US equity market. Prime place goes to the Fed’s hyper-easy monetary stance. A policy of zero interest rates with a stated intention to keep them there for a long time has the desired effect of boosting risk-taking. A second factor has been excitement about technology that has created a bubble in that sector. And then there is the view that novice retail investors have been seduced into the market by online applications such as Robinhood that make day trading very easy. Missing from the above list is the suggestion that investors expect the economy to be strong enough to validate the market’s current level. That just does not seem plausible because it is not credible that earnings could grow strongly enough to lower valuations to more reasonable levels over the next five to ten years. If the bull case for stocks rests simply on the TINA argument, then it implies equities will remain in a bubble over the medium term. That certainly is possible but not the foundation for a sound investment strategy. It is not easy to come up with an investment strategy when no asset is cheap. BCA’s House View is still to prefer equities on a cyclical basis and the challenge will be timing when to jump off the train. In conclusion, my answer is that there is indeed a disconnect between the economy and equity market. This may persist for quite a while but does not appear sustainable. I am reminded of the late 1990s when the bull market lasted much longer and moved far higher than I and many others expected. Yet, fundamentals eventually did matter with the S&P500 dropping by almost 50% over the space of 30 months. I am not suggesting that a similar decline is imminent and if the 1990s example is relevant, then the market can continue to rise for quite a while, and I am sure the BCA view will prove to be correct. However, ever the skeptic, my bias is to err on the side of caution rather than try to maximize returns. Let me end by giving our upcoming conference another plug. The outlook for US equities will be discussed by Liz Ann Sonders and Ned Davis, two highly-respected market analysts and we will have a separate important session on coming up with the ideal investment strategy from three different perspectives: the buy side, the sell side and independent research In addition, over the four days of the event, we will have high-level discussions of all the other key issues that will drive markets including China, geopolitics, the US election, currencies, and policy challenges. Find out more at https://www.bcaresearch.com/conference2020.   Martin H. Barnes, Senior Vice President Chief Economist mbarnes@bcaresearch.com   Footnotes 1Total returns and earnings were deflated using the corporate price deflator. 2Obviously, not everyone of working age pays much in the way of taxes and there are many aged 65 above who pay lots of taxes. But that does not abstract from the dramatic change in the ratio.  3If you want to know how many 70-year old people there will be in 10 years’ time, simply count the number of 60-year olds today and apply an appropriate mortality rate. 4Please see BCA Special Report "Beyond the Virus," dated May 22, 2020, available at bca.bcaresearch.com