What to do if the dollar crashes
The dollar has fallen dramatically over recent years, many against major currencies. Of course, the true time to start worrying about the dollar was seven years when he served at levels higher than 50% against the euro. But even after such a significant drop, these days, you have trouble finding someone who is really bullish on the U.S. dollar.
Why money moves Economics tells us that currencies go up and down against each other because of inflation. And of course, the late economist Milton Friedman noted that "inflation is always and everywhere a monetary phenomenon." Thus, while currencies clearly tend to be beasts of fear and greed, their movements are based on something. Currencies move down when traders believe the economy in a country will be more inflationary than in others. High inflation, in other words, means a devalued currency. At least, is how they draw in economy class. Frankly, currency exchange does not interest me that much. Investing in stocks based on the most likely outcome for currencies, on the other hand, am very interested. In my role as an advisor for our international investment services, Motley Fool Global Gains, I do this kind of analysis very much. The dollar is still drop One might think that after the dollar has declined so much, most likely would be increased. However, the American current account deficit sitting at 5.05% of GDP at the end of the first quarter of this year. There are corrections, mainly turning around to raise U.S. savings rate and lower public spending, but more likely is the continuous deterioration of the dollar. (See Warren Buffett on the test "Squanderville" for a simple explanation.) I do not know what will happen. In the words of Albert Einstein, "I never think about the future - it comes soon enough." But I do not spend much time thinking about things that must happen. The Chipotle (NYSE: CMG) Class B shares should be priced higher than the price of A shares, for example. Ultimately, they will be. And if the U.S. dollar should go against other currencies, and eventually it will. This means that, as an investor based in the USA, I would like to increase my exposure to companies that have little or no exposure to the dollar. Of course, this is not as easy as simply buying a group of international companies. Buy companies with the right exposure Let me explain. If you want to avoid exposure to the U.S. dollar, you would not want to hedge by putting your money in programming Indian giant Infosys Technologies (Nasdaq: INFY). Infosys is a fine, but most of its activities is written with American firms, and its contracts are valued in U.S. dollars. Investors do not really benefit from exposure to the Indian rupee, because the rupee conversion takes place only at the last point of a transaction. You get a lot more protection against a possible decline in the dollar have Columbus, Ga.-based Aflac (NYSE: AFL), which is some 75% of its business in Japan, denominated in yen. Aflac is also better coverage than Finnish telecommunications giant Nokia (NYSE: NOK). But what about companies with almost no exposure to the dollar? In global gains, I recommended shares of Taiwan-based GigaMedia (Nasdaq: GIGM), a company that provides online entertainment and broadband services to customers located in Asia and Europe. Almost none of the business is conducted in U.S. dollars. Or what about Telefonica (NYSE: EFT), the Spanish telecommunications giant with services in Spain, United Kingdom, Germany and Latin America, but a minimal presence in the USA? Or how about Guangshen Railway (NYSE: GSH), which holds a monopoly on the road running between Hong Kong and Guangzhou in China, among the fastest-developing economies in the world? I know that this We should not necessarily build an investment portfolio based economists prognostications. As a group, their accuracy records soothsayers be examined positively prescient in comparison. But the same extent, if you live in the USA, to be paid in U.S. dollars, and (increasingly) the purchase of goods produced overseas, there is a great benefit to the construction in some diversity of exposure to other currencies through your investment portfolio. Think about it this way - if these companies are still quite, and the dollar continues to fall, you'll still make money. |
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