Even without a Banking Crisis the U.S. has a Steep Advantage over Europe

Regardless of the short-term implications of the current battle between speculators and the ECB over the direction of the EURUSD, the long-term economic prospects look much brighter for the U.S. economy than the European economy from the perspective of the most important fundamental input: demographics.

While it is important for an economy to have a healthy investment class – people in their 40’s and 50’s — it is even more important to have a healthy consumer class – people in their teens and 20’s. The graphic below compares the 2017 U.S. population pyramid on the left to the 2017 German population pyramid on the right. Clearly the age groups in America are much more balanced then those in Germany. Educated investors know the importance of investing in areas which have a generation in place to replace the retiring generation and a sizable consumer generation. The idealized demographic looks like a pyramid.

Charts courtesy of  http://www.census.gov/

The ramifications of a population pyramid are paramount.  From an investment standpoint if more people are retiring than the age group following them it will put pressure on local real-estate and stock prices as retirees down-size and sell off larger homes and riskier stocks in favor of smaller, easier to manage homes and fixed income securities such as bonds and notes. Of course from an economic standpoint young people also tend to consume more than older people. While many of us might think it silly that young people spend so much on clothes, electronic gadgets, and countless other stuff, that same spending is an economic boon for local retailers and the tax base they pay into. When it comes to long-term economic health seeing the population pyramid of a region is the simplest way to see if time is on an economies side.       

Of all the modern economies of the world Australia enjoys one of the most attractive populations, with Japan having one of the most worrisome – see graphic below.

The pyramid shape on the left — Australia –is much more desirable than the pagoda shape on the right — Japan.

Trading is a risky endeavor and not suitable for all investors.

Jay Norris is a Professor at IBUniversity.com, and the author of Mastering the Currency Market, McGraw-Hill, 2009 and Mastering Trade Selection and Management, McGraw-Hill, 2011.