Posted on 03/04/2009 9:11:23 AM PST by SeekAndFind
The U.S. dollar is rallying against both the Japanese yen and the euro -- up about 7% against the yen and 9% against the euro this year -- despite a steady drumbeat of bad news.
What seems puzzling at first is perfectly understandable if you remember that a currency doesn't have to be perfect or even particularly solid to gain value. All it has to do is be less bad than the alternatives. And right now the U.S. dollar is the least-bad currency in the world.
The comparative superiority of the dollar won't last forever, but I'd give it at least six more months to run -- and maybe more. That's long enough so that investors need to incorporate the outperformance of the dollar into their investment strategies:
* A stronger dollar will take a bite out of earnings at U.S.-based multinational corporations such as Deere (DE, news, msgs), PepsiCo (PEP, news, msgs), Coca-Cola (KO, news, msgs) and McDonald's (MCD, news, msgs) because these companies will see international revenue converted from weaker currencies into fewer strong dollars.
* A stronger dollar means oil producers get more purchasing power for a barrel of dollar-denominated oil even if the price doesn't increase.
* A stronger dollar will slow the rise of gold, because a strong dollar gives nervous investors an alternative to the shiny metal as a store of value.
* And over the long run, a strong dollar makes international investments in weaker currency countries cheaper, whether you're a company on the prowl for acquisitions or an investor looking for stock bargains.
Let me start by explaining why the dollar is the world's least-bad currency and then suggest some investment ideas built on a stronger dollar.
(Excerpt) Read more at articles.moneycentral.msn.com ...
If you think our economy is in the pits, the grass isn’t greener in the other side.
In the world of least-bad currencies, however, the yen isn’t in the worst short-term shape of the global Big Three. That distinction goes to the euro, because of the economic and financial meltdown in Eastern Europe, where governments and consumers borrowed hand over fist when credit was easy. The bubble now deflating was huge, even by recent U.S. standards.
The crisis in Eastern Europe has spread through the banking system to Western Europe, which extended most of these loans. The Royal Bank of Scotland (RBS, news, msgs) estimates that foreign bank loans to Eastern Europe totaled $1.6 trillion at the end of September. More than 90% of that total came from banks in Western Europe.
In some cases, the loans are so large that they threaten the entire banking system in the lending country. Banks in Austria extended loans equal to 75% of Austria’s GDP, according to the Royal Bank of Scotland. Swedish banks are on the hook for loans equal to 30% of that country’s GDP. Greece, which has enough economic troubles of its own, thank you, extended loans equal to 19% of its GDP.
It was the USA that led the world in this recession. I believe it will be the good old US of A that will lead them out of it.
Barry plans to put and end to that as soon as possible.
-(those who don't know what I'm talking about need to read more Western U.S. history)---
The dollar is normally strong when there is deflation.
Just wait until all of this injected liquidity kicks in.
What about the Swiss Franc ? Anyone think this is the more stable currency that can hold its value ?
NO.
If you think Austria is in bad shape, with their banks having written loans up to 75% of their GDP... heh. You ain’t seen nothing until you look at countries like Switzerland — over 200% of GDP. Denmark - over 200% of GDP. Ireland - dunno, but it is very high. Iceland - over 200% of GDP (and gone).
Double yikes!
Yea.
And Germany has indicated that they’re not going to be an easy soft touch for bailing out all these highly leveraged countries.
So when people keep yelling at us how the “radical free market Republicans” brought this on — ask them how many “radical free market Republicans” were running the socialist democracies of Europe, in particular Iceland, Ireland, Switzerland, Denmark, Austria, Hungary, Poland, and so on. Ask them how many “radical free market Republicans” ran the banks in Sweden into the ground in the early 1990’s, and so on.
This is NOT an isolated problem to the US.
One of the reasons why GE (General Electric) stock is in the crapper is their exposure to eastern European loans. It isn’t a huge piece of GE’s assets, but is is enough, and the economy over there is bad enough, that it has very real potential to blow a huge hole in GE’s balance sheet.
How can it possibly be WORSE anywhere else?
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