Why a Weaker Dollar is good for America

For a long time now we have been exposed to the US President ,Treasury Secretary and various Senators talking about the benefits of a strong Dollar and how that is in the interests of America.This is really all just political rhetoric the reality is somewhat different . In its current situation the last thing that the US needs or wants is a strong dollar- but unfortunately it just isn't politically the right thing to say.So why is a weak dollar good for America ?

Well if anyone has been to the US recently or if you are indeed a US citizen you cannot fail to have noticed the increased prevalence of foreign accents that seem to be in every restaurant or store.It seems that America is on sale and the rest of the world is buying. Since 2002 the dollar is down about 25% and the rest of the world is taking advantage .Not only do they flock in their droves to the US to spend their money but it is good for exporters as well who find that demand for their goods increases the more the dollar weakens.

Tourism is a huge industry for the US but not only for attracting foreigners to its shores but as the dollar weakens and it becomes more expensive to go abroad more and more Americans are opting for Disneyland Florida and not Disneyland Paris. Not only does the weaker dollar make it more attractive to vacation there but it also makes it far more attractive for foreign investors -whether it is the huge cash piles of some of the Far East and Middle Eastern Sovereign Wealth funds or someone looking for  a US holiday or retirement home

Foreign ventures put $407 billion to work in the U.S. in 2007. That was a 93% increase over 2006. The Chinese, in particular, were an active bunch. Chinese investment soared from only $66 million in 2006 to $9.6 billion last year.American assets should attract even more foreign buyers this year. The Chinese are eyeing American timberlands, for example.  American farmland, mines and other hard assets must also seem cheap.The weak dollar affects things in a couple of ways. On the one hand, it makes imports more expensive. So far, a weak dollar has not stopped imports from growing nationally, though it has slowed the pace. On the other hand, the weak dollar has really benefited America's export engine as I indicated above.

Exports grew twice as fast as imports in 2007. For the first time since 1995, the gap between the two narrowed. America's commodity producers get a lot of help when the dollar falls. They incur their costs in dollars. Yet they sell into the global market for metals, minerals and other commodities. Global prices are all near multiyear highs, thanks in some measure to the weak purchasing power of the dollar.

America's manufacturers - what's left of them - also gain. Strong demand from overseas drives their sales. Suddenly, America's goods look cheap. "Foreign demand for advanced machinery is huge," reports The Economist. "Civilian aircraft, drilling tools, agricultural machinery and excavators all rose at double-digit rates in 2007."

So in terms of investment opportunities we should be thinking about companies that export a lot of their goods overseas and possibly those in the Hospitality and tourist industries. So no matter what Hank Paulson and his cronies trot out at each press conference the weaker the US dollar gets the more likely they are to be able to find a way out of their current situation and to reduce the Current Account deficit.

 

Best Wishes

Alan

 

Technorati Tags: Strong Dollar Policy,Weak Dollar,Foreign Investment in US,Investing in US Tourist Industry

How to get Fat profits from the Obesity Epidemic

 

It is well known that the worlds developed nations are increasingly struggling with the Health Crisis caused by Obesity. Type II Diabetes is on the rise and is increasingly being seen in younger and younger patients. Previously a disease of middle age ,it is not uncommon to see cases now in teenagers in the US and the UK.

It seems now though that this epidemic is spreading its wings beyond the UK and US and is going Global

The World Health Organisation projects that 2.3 billion people will be overweight by 2015 and a further 700 million will be obese – a staggering 45% and 75% increase from current levels.

What is the main underlying cause of this problem ? Well for the most part, it’s poor lifestyle. As developing economies grow rapidly, more and more people around the world are becoming richer and leading more urban lifestyles. That generally means eating more and doing less physical work compared with an agrarian lifestyle. In addition, stressed and harassed workers spending more and more time at work or their desks are increasingly defaulting to processed and prepacked food which is generally less good for you than freshly prepared meals.Longevity is another factor, as we get older and live longer more sedentary lives after  retiring  from work we can expect obesity levels  to rise further.

According to the International Obesity Task Force, the percentage of overweight and obese children in England has more than tripled since the mid-1980s to around 25%. As research suggests that around 70% of overweight children go on to become overweight adults, this is clearly storing up problems for the future.

The Rand Corporation, a US think-tank, estimates that if current trends continue, obesity could account for 20% of US healthcare costs by 2020. Of course, where there’s a problem, there’s someone trying to solve it – and that means investment opportunities.Given today’s tendency to try to solve problems by popping pills, the most promising way to make money from our expanding waistlines is via the pharmaceutical sector. 

A drug that can melt off the pounds is a holy grail for the pharmaceutical industry and several firms are trying to develop one. Two are already available – Roche/GSK’s Xenical and Abbott’s Meridia – but both have unpleasant side effects. Sanofi-Aventis had high hopes for Acomplia, but last year withdrew its application to market the drug in the US for weight-loss purposes after suggestions of increased suicide risks.

So we are possibly some way away from a safe well tolerated "Fat Busting Pill" there is also debate as to whether the financial pressures on the Worlds Healthcare systems will allow for funding to be generally available to pay for drugs that treat what can be a preventable disease .

Currently some of the best ways to play this trend is via the companies that treat diabetes. There are three or four companies that are well established in the market and would warrant further investigation, there are also one or two higher risk/reward plays that might be worth looking at if you are less risk averse

One established play is Denmark’s Novo Nordisk (US: NVO) around three quarters of its revenues  are from the $21bn diabetes-care market.It isn’t the cheapest pharmaceutical stock on the market, but offers a record of strong growth and high-quality management.

A shift towards higher-margin treatments, such as insulin substitutes, growth hormones and blood-clotting drugs is paying off, and double-digit profit growth should be sustainable – as long as new drug Liraglutide, which stimulates insulin production, performs well against a long-acting version of Eli Lilly’s Byetta.

Riskier, but with the potential for far higher rewards is Arena Pharmaceuticals  (US: ARNA) one of many firms trying to develop that blockbuster weight-loss drug. Its drug, Lorcaserin, stimulates a protein in the brain that makes people feel full – the same approach used by a previous drug called Fen-phen, developed by Wyeth. Fen-phen was withdrawn in 1997 after causing heart-valve damage in some patients, but the latest trials suggest that Lorcaserin will not cause the same problem. Further studies are continuing, but if all goes well, Arena plans to seek US regulatory approval in 2009.

If it comes to market the analysts view is that it will likely be a $1 billion drug and will make a real difference to the bottom line for Arena which currently has no products on the market

 

For those who are looking for a more steady and possibly safer play then you may want to look at GlaxoSmithkline (GSK).Over the last year they have had a real rough ride with their Diabetes drug Avandia after an article indicating it could cause cardiovascular problems . This resulted in a number of patents being switched to their rival Takeda's drug Actos.

Recent indications have been that the loss of prescriptions has slowed and may be reversing, Takeda are a lot smaller than their UK rival and they cannot match GSK in terms of Investment or resource so may find it increasingly difficult to hold off a sustained marketing onslaught from GSK.    

Best Wishes

             Alan 

 

Technorati Tags: Arena,GSK,Takeda,Sanofi Aventis,Novo Nordisk.Diabetes,Obesity

Time to Buy Housing-Am I crazy......on the Contrary

 

A recent poll in Barron’s suggested that amongst its readers the most hated asset class (not surprisingly) was real estate investments and the most loved class was Latin American stocks so most of us would think that the right trade is to buy Latin stocks and sell real estate stocks.

Funny, then, that real estate stocks are now the best-performing sector this year... Simon Property Group – the benchmark real estate stock – is up more than 20% year-to-date.

 

Meanwhile, the Latin American Discovery Fund (LDF) a collection of South American blue chips, is down for the year.

How does this work ??

Quite simple really when everyone is bearish then there are little or no sellers available as everyone of any size has got out of the markets previously.When there is no one selling then the price stops going down-simple really !!

 

So as an example : In the second week of March  Simon Property Group (SPG)  traded for around $86. Now – just six weeks later – it's at $105.

Conversely the Latin American Discovery Fund peaked at the end of April and has treaded water ever since... Why hasn't it gone up? For the opposite reason -there's nobody left to buy – Everyone who wanted to be invested in Latin America had already bought.

 

You have to wait for the extremes in sentiment. The old saying is, "The crowd is wrong at the extremes, and right in between."

If we look at the Barrons poll... Only 3.6% of investors are bullish on 10-year Treasury bonds. So nearly everyone believes long-term interest rates are going up.

Currently Long term Interest Rates are less than 4% so most pople (based on theri past experiences thinks they are unlikely to go any lower. Lets cast our eyes over to the Far East, in 1990 Japan's Interest rates were about 7% when the property market crashed the rates fell to below 1% . Today they are still only 1.5%

 

All the talk is about the potential for inflation... and everyone expects interest rates to head higher. however it is entirely possible that long-term interest rates could surprise us all  and head  lower. Already, interest rates on 10-year Treasuries have fallen from more than 5% in the summer of 2006 to below 4% now.

If you want to follow the crowd , bet against real estate stocks and bet that interest rates will head higher. But if you are a contrarian  then to get extraordinary" returns, you must be willing to do something extraordinary.

I am buying the IShares Home Construction Index (ITB) I don't expect it to move up overnight but I think over 6 months it will be a good call.

 

Best Wishes

 

Alan

Technorati Tags: Invest in Latin America,Home Construction Fund,Investing in Real Estate

Starbucks focuses on Coffee ?

 

A little while back I looked at whether you should buy Starbucks or the Coffee ETF-Should I buy Coffee or Starbucks ?

My conclusion was that I thought Coffee would go higher and that as I favour for most commodity related stocks I prefer (if you can to buy the Commodity as there are a number of factors that can negatively impact on a stock that are not related to  supply and demand. That proved to be a fairly good call as Starbucks unveiled weaker-than-expected estimates for its fiscal second quarter and year--sending shares down a whopping ten percent last Thursday.

Like a lot of successful companies Starbucks in a bid to grow started to expand and diversify away from its core business-selling coffee.

Starbucks CEO Howard Schultz is trying to get Starbucks focused on coffee--which means the entertainment business it's been building up over the past four years is now due to be pared down.

After the market close last week, the company announced it will no longer be managing its Hear Music record label, which launched just over a year ago with Paul McCartney on board. Schultz is also shaking up the entertainment division's management -- Ken Lombard, an SVP and president of Starbucks Entertainment "has left the company," which usually means code for "pushed out." Now the division will be run by Chris Bruzzo, Starbucks' Chief Technology Officer, indicating the division the direction is moving towards-- digital downloads, and away from old fashioned CD sales.

Last year Starbucks made a deal to offer access to Apple's iTunes music store, in 600 plus of its stores through WiFi networks, and just last week it announced that it'll be handing out cards to allow customers to access songs and music videos online-- for free.

Starbucks isn't getting rid of this division. It just doesn't want to be in the business of producing music. It'll keep selling music in stores, though it's unclear if the company will change the style or variety of music it sells.

The company is trying to learn from its mistakes. It has no more plans to market movies again as the two films it promoted in-store had quite disappointing box office performance, so there doesn't seem to be incentive on either end.

But Starbucks will continue selling books in stores and working with William Morris Agency to find projects they think will sell. And Starbucks is powerful in the publishing industry--almost like when Oprah picks a book, getting chosen to be sold by Starbucks register almost always guarantees that a book becomes a best-seller.

AS I said in my previous posts my personal preference is for Coffee itself and I am looking for an opportune time to buy the Coffee ETF (COFF) which is building a nice base at the moment around the $3.15-$3.20 area.

 

 

Best Wishes

 

Alan

Technorati Tags: Starbucks,Coffee ETF,Investing in Coffee,Commodity Investing

Using Currency ETFs and ETNs to reduce Currency Risk And Investing in Indian Rupee and Chinese Yuan

For a while there have been a substantial number of ETF's that track the major currencies around the world. These give investors the opportunity to be able to position themselves based on Global Macro Economic views.Over the past few years you would have dine very well being invested in the higher yielding "Commodity  based Currencies such as the Australian Dollar.

What Are They?

• Currency ETFs (exchange-traded funds) track a singe foreign currency or basket of currencies by using foreign cash deposits or futures contracts. For the ETFs that use futures, excess cash is usually invested in high quality bonds, typically US Treasury bonds. The management fee is deducted from the interest earned on the bonds.

• Currency ETNs (exchange traded notes) are non-interest paying debt instruments whose price fluctuates (by contractual commitment) with an underlying currency exchange rate. Because they are debt obligations, ETNs are subject to the solvency of the issuer.

It is also a useful way to hedge a portfolio if you are heavily invested in a currency that is not your home currency. It means you can reduce the currency based risk when you repatriate your funds back to your home bank account.

Over the past few years I have suffered as a UK investor with a substantial number of positions in the US dollar. To my knowledge there are no US brokers that will allow  you to hold your funds in any other currency beside US dollars.That is not too major an issue if you are a US investor or plan to retire there or make any major purchases in US dollars.

However if you are based outside the US then it can turn a good portfolio performance in to a poor one or even a loss when you try to bring your funds back to your own Country.

Using Currency ETF's can help manage this risk-in the last little while there has been an increasing number of these ETF's launched and I have listed them below

Australian Dollar
CurrencyShares Australian Dollar Trust (FXA)
ELEMENTS Australian Dollar (ADE)

British Pound
CurrencyShares British Pound Sterling Trust (FXB)
ELEMENTS British Pound (EGB)
iPath GBP/USD Exchange Rate ETN (GBB)

Canadian Dollar
CurrencyShares Canadian Dollar Trust (FXC)
ELEMENTS Canadian Dollar (CUD)

Chinese Renminbi
Market Vectors - Chinese Renminbi/USD ETN (CNY)

Euro
CurrencyShares Euro Trust (FXE)
ELEMENTS Euro (ERE)
iPath EUR/USD Exchange Rate ETN (ERO)

Indian Rupee
Market Vectors - Indian Rupee/USD ETN (INR)

Japanese Yen
CurrencyShares Japanese Yen Trust (FXY)
iPath JPY/USD Exchange Rate ETN (JYN)

Mexican Peso
CurrencyShares Mexican Peso Trust (FXM)

Swedish Krona
CurrencyShares Swedish Krona Trust (FXS)

Swiss Franc
CurrencyShares Swiss Franc Trust (FXF)
ELEMENTS Swiss Franc (SZE)

Recently there have been two new exotic additions to the Currency ETF/ETN portfolio's namely an ETN that tracks the Indian Rupee and and ETN that tracks the Chinese Yuan.

Since it is not easy to directly invest in either of those currencies then the ETN may be a good way to go if you wish to get in  early particularly on the Chinese Yuan which most people are thinking about going long on with the expectations of the continued revaluation against the US Dollar in the years to come.

 

Best Wishes

 

Alan

Technorati Tags: Renminbi,Yuan,Rupee,ETF,ECN Currency ETF Currencies,Hedging