Sponsored Link:
Weak U.S. Dollar
The Smart Profits Report: Issue #481
Friday, December 14, 2007
The Weak U.S. Dollar: How To Combat The U.S. Dollar’s Demise Through Global ETFs
By Karim Rahemtulla
Investment Director, Mt. Vernon Research
Interest rate decisions sure can be entertaining, can’t they?
Of course, that entirely depends on your definition of “entertaining.” Many investors greeted the Fed’s latest interest rate cut with the one-fingered salute. Having hummed along pretty well throughout Tuesday, the stock indexes promptly sold off en masse after the announcement.
Sure, problems like weakening economic growth, a struggling real estate market, a weak U.S. dollar, sluggish retail sales this holiday season, and the biggie - a wholesale credit shortage - heightened the clamor for another interest rate cut. And Fed rhetoric all-but assured the market that it would oblige.
But while all this Fed chopping might jam enough liquidity into the markets to prop them up for a while, it doesn’t bode well for Americans’ standard of living. And it’s creating a much larger worldwide macroeconomic problem that you need to know about in order to protect your wealth and be in the best position to profit…
The Weak U.S. Dollar Threatens National Sovereignty
A few months ago, I told my Xcelerated Profits Report readers that the U.S. “is in the process of badly debasing the dollar” and that the country will continue to lose any sense of “sovereignty” as long as the trend persisted.
Well, it’s happening.
- The Fed cuts have stomped all over the dollar. And I’ve got news for you: The debasing is going to accelerate.
- The euro, British pound, Canadian dollar, the Australian and New Zealand dollars, and the Indian Rupee have all notched up either multi-year or all-time highs against the sad U.S. dollar this year.
- With the dollar rapidly losing value, the U.S. is essentially “on sale.” If you don’t believe me, consider that through the first nine months of 2007, the value of U.S. corporate acquisitions from overseas firms hit $257.4 billion, according to Thomson Financial - the highest since 2000.
Right now, cash is king - and now more than ever you need to adopt a global stance in your portfolio. The money isn’t here anymore; it’s over there.
Global Threat: The Politics Of Fear & Foreign Acquisitions
You may remember that a couple of years ago, everyone in Congress had a fit when Dubai Ports World bid for ownership of a U.S. port. All kinds of fears were raised, both founded and unfounded. But in the end, the politics of fear (and politics in general) prevailed. The offer was allowed under condition that DPW divested U.S. assets. A few months before, the Chinese were also rebuffed in a bid to buy a U.S. oil company.
My, how times have changed. Actually, strike that. How politics have not changed. Today, we face a crisis in the financial markets - but it’s more a crisis of confidence than anything else. The daily whipsawing of the stock market signals that all is not well. Worse still, the government wants to bail out every deadbeat borrower who took pleasure in trying to game the system through the subprime market.
And the Fed? It knows the situation is bad. The Treasury knows it will get worse, too. And the politicians are running scared. How do I know this?
America Is Losing Its Ownership And Control Of Its Destiny
You can see it in the open arms we’re extending to the same Middle Eastern nations that we once repelled. Of course, the argument that selling portions of Citicorp to Abu Dhabi, courting Gaddafi, or playing nice with the Chinese (who pretty much control our future as much as we control theirs) is now in our best interests.
I beg to differ. A rainstorm doesn’t just materialize. First you have a few drops that don’t send people scurrying for cover. But within a few minutes, it rains harder, before the deluge hits. And it’s not until after the storm that the damage is assessed.
Some say that what is happening may not be a global threat to U.S. security. After all, we’re so used to being a nation in debt, what does it matter whom we owe and how much?
But it does matter. Each asset we sell off results in a little bit more ownership over our markets, our currency and control over our destiny. For example:
- The Chinese now control $1.4 trillion U.S. dollars, oil rich states are now buying U.S. assets with the same money that we’re sending over to buy oil.
- Some are concerned that as long as this trend continues, their leverage increases and ours disappears.
- And that could mean American job losses and corporate spending power and influence could weaken, since foreign firms will have more control in the most lucrative sectors like technology.
So what’s the solution?
Combat The Weak U.S. Dollar & Consider Global ETFs
Unfortunately, there is no easy fix. A weak dollar makes our goods and services cheaper and other countries’ products more expensive. That means capital inflows into the U.S. will increase, our exports will increase, and our imports will slow.
You might not see much effect when you buy a few items from the corner store. But you see it at the gas pump. And if you travel, your purchasing power is greatly diminished.
Yes, the dollar will turn back up eventually because the currency market runs in cycles. But the bottom line is that it will remain weak as long as we print more money than we save. So we either reign in consumption or we become a true financial melting pot.
However, there is a simple step you can take to combat the pain until the dollar rebounds: Go global. Take a look at your portfolio’s exposure to foreign markets and currency holdings. Make sure you’re diversified in these areas.
To get you started, you could consider ETF investments like:
- iShares MSCI EAFE Index (AMEX: EFA), which tracks Europe and Asia, excluding Japan.
- iShares MSCI Asia-Pacific ex-Japan (AMEX: EPP)
- iShares MSCI Emerging Markets Index (NYSE: EEM)
Good investing,
Karim Rahemtulla
|
Today’s Smart Profits Action Center
- Having already grabbed a 54% win in just less than two months on the iShares FTSE/Xinhua China 25 Index (NYSE: FXI) earlier this year, I’m hitting the foreign investment trail again to kick off 2008. Having recently spent two weeks on a research trip, examining this rapidly growing market and its potentially lucrative investments, the January Xcelerated Profits Report issue will feature my top Indian recommendation. And rest assured, this one is growing fast. Find out how you can get on board today, so you don’t miss out…
- Despite having just crossed back above its 50-day moving average, this chart shows just how far the U.S. dollar has sunk over the past 12 months. A costly war, massive budget deficit, and now a global credit contraction and slowing U.S. economy have combined to demoralize the currency, with the Federal Reserve’s recent interest rate cuts driving more nails into the coffin. For three months, the dollar has traded below the benchmark 80-point level.
- The Fed received more grim news today, with the Labor Department’s announcement that wholesale prices jumped 3.2% in November - the biggest increase in 34 years. So as the Fed cuts rates to inject liquidity into the economy, it now has to contend with a fresh bout of inflation worries. A record 34.8% surge in gasoline prices drove the bulk of the gain. But more worrying was the news that even “core” inflation (which excludes volatile energy and food prices) climbed 0.4% - double what analysts had forecast. The government released the November Consumer Price Index figures early this morning, that showed a 0.8% jump in prices - the biggest montly rise since September 2005. Former Fed Chairman Alan Greenspan said today that the odds of a recession are “clearly rising.”
Related Articles:
- Fed Interest Rates: Depressed Economy, Inflation Fears & A Weak Dollar Present Problems For Fed
- Israel’s Emerging Market: U.S. Markets Deflate As The Tel Aviv Stock Exchange Rises 254% Since 2002
- Global Markets Investing: Get 300% More Bang For Your Investment Dollar And Diversify Your Portfolio
