US Dollar Continues To Weaken

| July 18, 2007 | 0 Comments

I was at a party a short while back where the big topic of conversation was the markets.  I sat back and listened with interest about how these investors viewed the markets.  Interestingly, and as a total aside, 18 months ago real estate was the hot topic, now it’s the market.

Anyway, this well educated bunch spent most of the evening highlighting
all of the great reasons for the markets to rally: commodity prices
like copper and gold, energy prices like oil and gas, climbing earnings,
overseas market growth, China, India, South America . . . the list
went on and on.  Their reasoning behind each market driver was well
informed and well articulated.

However, these investors missed a major event in the world – the
decline of the US dollar.  Now, normally I’m indifferent to the US dollar and
where it sits, unless I’m planning a trip abroad.  For those of you who frequently travel internationally, you know how important the status
of the US dollar is, and its purchasing power.

Right now, the US dollar is sitting at record lows vs. the Pound and
the Euro, and continues to float just above the lows set against the
Japanese Yen.  This means your hard earned dollar buys you much less than it did a few years ago.  Now put yourself in your foreign friend’s shoes for a moment.  Call them up, if you must, and ask them a simple
question “How does the weak dollar affect you?” I guarantee you will get some surprising answers.

I have a few friends in London who are planning shopping trips to the
US just because of the weak dollar.  For every British Pound they bring,
they get over 2 US dollars.  They make the same amount of money they
did last year, but the weakness of the US dollar has amplified their
purchasing power.  The strength of their currency allow them to buy
whatever they want, shoes, clothes, cars – whatever their heart desires
because, in their eyes, the entire US is on sale.

Now put yourself in the shoes of a major fund manager in Europe.  They
know the US dollar is weak, so what do they do?  They go shopping for
stocks and bonds and real estate in the US.  They buy and buy and buy.
Now ask yourself, what do they buy?  They buy hard assets and of course, what they know.  Some perfect examples of hard assets are precious metals – gold, silver, platinum – or real estate. In the markets they will buy what they know, which happens to be large capitalization stocks.

This purchasing power flowing across the pond is driving not only large
cap stocks higher, but the Dow itself.  Hence the recent run towards
14,000.

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Category: Currency Trading

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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