Our Weaker Dollar

Everybody is talking about the Euro rising above the dollar. As I have continued to actively pursue opportunities in U.S. and international capital markets over the last 12 months, I have noticed an eye-popping 24% decline of the dollar vis-a-vis the Euro. Basic economics, which I remember getting drilled into me years ago by BYU's famed Dr. Kearl, teaches us that an orderly decline of our currency usually causes U.S. exports (and has actually done so) to decline in price, and therefore increase in volume to the full extent of the dollar's decline. Assuming Ceterus Paribus (this is a surreal condition referred to by economists that means if all others but this one variable remain equal), Dell, Caterpillar, Coca Cola, GE, Boeing, and Alcoa now can undercut their European counterparts by 24% in price without cutting a red cent from their dollar prices and profits. Now, if the dollar were to experience a series of large rapid shocks to the upside or downside, that would rattle confidence of foreign investors. Any large, rapid swings would be harmful. However, the decline thus far has been very orderly--not a single 24 hour period on my charts have shown any kind of volatile moves. It would be foolish to compare the 1% per day moves of dollar/Euro exchange rates to the wild moves that are seen in trading the currencies of Mexico, Brazil, Venezuela, Russia, and so on. The dollar is still the most widely held currency in the world and has attached to it the 227 year perfect credit rating of the U.S. treasury, along with a Fed and Economic system that are the envy of the world. What was Sadaam carrying in his spiderhole? Ben Franklins. Ben Franklin is simply retracing some of the gains of recent years in a very rational way, and a single Euro go to $1.30 or $1.40 (up from $1.26 this morning) if the clueless guys in the Bundesbank don't pull it together and cut their lofty interest rates to boost their stumbling, overregulated, socialist European economy. The dollar's decline has actually been a net positive for our trade deficit AND America's small and large businesses who export to Europe. What we've seen over the last 12 months is a relatively modest realignment of currency that is perfectly appropriate, given the silly resistance of the European Central Bank to keep its interest rate more than double that of the U.S. My experience with foreign currency markets over the past couple years has taught me that relatively low interest rates (real interest rates are those adjusted for inflation), or the anticipation thereof, will almost always mean a depreciating currency valuations. Are we witnessing the downfall of the U.S. currency? Is the world pulling everything out of the United States'? Nope. The noise is no more than pundits who are looking for a news story. The ones who should be worrying are the Europeans, whose export sector has been slapped by the surging Euro. The Euro is a more colorful currency than our dollar, by the way. So, no, the Greenback is not in trouble. It just means that we may have to put up with a few more French tourists spending their funny, colorful bills in America. On a personal note, I am pleased to say that Smartstocks.com has entered its sixth year of operation. I am so pleased to be part of a team that survived the dot com phase. I want to thank you all so much for you continued support these last five years, and for making my idea and my dream as a college senior in 1998 become reality. Be sure to watch out for our newsletter, coming out soon. Please note my email address has changed, and I will be taking your questions and emails once again when the newsletter is in place.