If you want to predict where an economy, anywhere in the world, is headed you better know that country’s demographic setup. And if you’re looking for a really juicy investing idea based on a really basic demographic concept here it is: Long the U.S. Dollar versus short the Yen and Euro.
But let’s back up a bit. Hedgeye CEO Keith McCullough reviews why studying demographic trends is essential knowledge for any savvy investor. “What you’re going to figure out really quickly is that the spending of 35 to 54 year olds matters a lot,” McCullough says in the video above from a recent call with institutional investors. This mid-lifer population consumes the most, whereas youngsters haven’t yet stepped up their spending and the retired elderly are pulling back.
Now, looking at demographics reveals a stark reality separating the U.S. from Japan and Europe. The age bracket that has been America’s biggest spenders historically is growing once again, whereas that same demographic cohort will continue to fall in Europe and Japan. The year-over-year growth rate of the U.S. population ages 35 to 54 years old has now rebounded off a more than 30-year low. Meanwhile, this population in Japan and Europe will continue to decelerate.
A great “long-term” idea a hedge fund could charge “4 and 40” for, McCullough says, is long the U.S. dollar against short the Euro and the Yen. “Unless time and space doesn’t matter anymore, you cannot create demand with quantitative easing when your demographic curves are going down,” he says.
In other words, as the U.S. separates demographically from Europe and Japan, expect a strengthening economy to boost the dollar and weakening growth to hurt the Euro and Yen.
