The upside of a downswing

The media has highlighted the negatives, however there is an upside to a low-priced currency. Think about it; is it really an advantage for a country to have an expensive currency? Your products are expensive and not as competitive, tourism is hurt and investment capital may look elsewhere for a more attractive risk/reward ratio.

Here are several reasons why a weaker dollar should not be overlooked.

Foreigners holding euros, yen, or Canadian dollars, which now have more buying power than the U.S. dollar, are apt to see U.S. markets as quite an attractive option compared to home, or other high priced currency countries.

U.S. exports look more attractive: U.S. companies that manufacturer capital goods for export are undergoing a resurgence. They now comprise 3.5% of the U.S. economy and the sector is growing at twice the speed of the economy as a whole. Why? The dollar effect.

Exports are running at a record pace, the highest in U.S. history. The U.S. is exporting $4.3 billion per day of goods and services. This is an increase of 60% over the last 5 years.

U.S. real estate appears inexpensive. British, Russian, and German investors have been buying office properties and houses in key U.S. cities. This may be helping to support real estate values in many U.S. cities and lesson the real estate crash.

Stocks of U.S. companies in certain industries are not excessively expensive by historic measures of P/E valuations. So, these companies look even cheaper to the British, the Russians, the Germans, etc., given that their currencies have more buying power.

U.S. retailers are getting a boost. Our weak dollar has made U.S. shopping expeditions so beneficial that foreigners can offset the price of their airline tickets by buying clothing and electronics in U.S. stores.

U.S. tourism gets a boost from a “cheap” dollar. Las Vegas, the Grand Canyon, and amusement parks in Florida are reporting record numbers of foreign visitors.

U.S.-based multinational companies, which sell abroad, get to stream revenues in from a higher currency, benefiting their profit and loss statements, boosting earnings - especially if their cost of goods and labor costs are denominated in a weaker currency.

Not all the news of the weakening dollar is thus bad. Also consider the ripple affect of, say, tourism. Money is spent on hotels, food, rental cars, which in turn stimulate other jobs and services. Globalization of currencies has a way of shifting demand from a high cost zone to a lower cost zone. Discounting political risk, this is a natural flow for capital to take. Capital will always look for the best return for the least risk and the U.S. apparently is a popular destination for global capital.

(Article written by
Rich Luchsinger of Sovereign International)