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

Visa in Record IPO, Goldman and Lehman Results calm Markets

The Credit card company Visa (V)  set a record yesterday for the biggest-ever initial public offering (IPO) in U.S. history, bringing in an estimated $17.3 billion. The company offered 406 million shares at $44 per share, . The company will begin trading on the New York Stock Exchange under the ticker symbol V. Goldman Sachs and Lehman reported results yesterday that beat Market expectations but were substantially down on previous quarters reflecting the challenges in the market currently but since expectations were for a lot worse this had the impact of assisting the markets to another 400 point upside yesterday.The Fed helped hugely  cutting rates by a huge 0.75% ,this was still below some market expectations of a 1 % cut, the market however rallied on the news.Today we are seeing numerous statements from the likes of Morgan Stanley (MMS) and Goldman Sachs (GS) stating that they took advantage of the Fed discount window, bearing in mind the secret nature of these institutions this can only be seen as blatant PR to try to remove the stigma that would be associated with people finding out that Banks are in need of capital.The thought no doubt being that if the likes of Goldman and Morgan Stanley are using it then it doesn't mean there is a problem. On the contrary my view is that if they did indeed use the window it just goes to show the depth of the problem.

 

After earlier appearing to probably open to the downside the markets  opened slightly to the upside although at the time of writing they are back in negative territory.Rumours in the UK that HBOS(HBOS-LSE) are having liquidity problems-(which they have denied )are keeping the fear in the markets. The dollar is stronger and this is having a negative impact on Gold and Silver, with April Gold futures off 45 points currently . If we see Gold down around the $900 mark then I may consider adding  ore to my portfolio. Those of you who read my article on Silver yesterday (Should I buy Silver or Gold ? ) will note that Silver is holding up much better only off 0.13 at $19.71 for the June Futures.

I own both Gold and Silver but as I said yesterday if I was only looking to buy one I believe that Silver has the most catching up to do and that would be the one that I would favour I would use the Silver ETF (SLV) and look to leg in on pullbacks.

 

 

Best Wishes

 

 

Alan

 

Technorati Tags: Fed,Silver ETF,Goldman Sachs,Morgan Stanley,Lehman,Gold,Visa

Australian Stock Picks-Commodities Power the Aussie ASX

Continuing my theme of looking at the diversified ETF's(Exchange Traded Funds) coupled with my belief that we are in the midst of a secular Bull Market for commodities(who am I to argue with Jim Rogers !!) then I wanted to expand on my recent post around China and Taiwan and take a look at Australia.Since 2001 Australia has benefited from the boom in commodities especially the Metals such as Gold,Silver and Copper mined by companies such as BHP Billiton (NYSE : BHP) and the agricultural commodities-which some would argue are only recently starting to catch up with the rest of the booming Natural Resource Mkts-(witness Corn and Wheat over the last few months.)

If you believe as I do that we have a good few years to go before the Natural Resource boom tops out then the Australian Mkt should do very well in the next 5 or so years.Even although the ASX 200 broke out from its all time high in the last few weeks I still believe that we will see it higher in the years to come.It climbed 19% in 2006 topping its 2005 performance of just over 17%.

If that was not reason enough to look more closely at the opportunities in Australia the fact that the Australian Dollar has strengthened against the US dollar is another good reason for any American Investors or those who hold substantial amounts of their portfolio in dollars to consider the Australian Markets.

In order to benefit from the boom "down under|" then we could look at individual companies such as BHP Billiton (NYSE: BHP ) or Rio Tinto (NYSE: RTP) up 220% and 150% respectively over the last five years, but I prefer the diversification of a fund-especially when companies can be as volatile as BHP and Rio Tinto.I would therefore take a close look at iShares MSCI Australia Index Fund (AMEX: EWA).This will give you a broad exposure to Australian companies and also will give you the benefits of some protection against the potential of a falling US dollar.This ETF is up 180% since 2001 and put in a performance of nearly 30% last year-that being said I think there is still some more upside particularly if you take a 3-5 year view. I currently hold some of the EWA but would be looking to add some more on any weakness or pullbacks.

As ever do your research , I would be placing a Stop loss of 20% on my average price and be looking to hold,for 3+ years.

Best Wishes

Alan

Tags: EWA, BHP, RTP, ASX, iShares, Australia Stocks, Investing, ETF, Currencies, US Dollar

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