Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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Why the Greenback is Likely to
Fall in 2009 -- And How You Can Reap the Gains |
Published:
February 3, 2009
As I
have often said, I see three major trends playing out in the
coming year. One big trend for 2009 is the decline of the U.S.
dollar.
The dollar's fall began in 2002, but was interrupted with a
sustained rally from July through November of 2008 -- with an
especially dramatic surge in September and October. Since
November 21st, the dollar has given up about a third of its
gains. I believe there will continue to be more downward
pressure on the currency because of several established forces
that are unlikely to change.
First, the U.S. runs a trade deficit of about US$750-850 billion
a year, meaning we buy nearly US$1 trillion more goods and
services from foreign countries than we sell to them. This
leaves foreign companies, citizens and governments awash in
dollars. What do they do with the cash?
 Fortunately,
they usually use them to buy U.S. government bonds and other
investments here -- such as stocks and real estate. In recent
decades, our trade deficit has been financed by this cycle; our
dollars are sent back to us, literally. But as you'll see, that
could change.
The federal government's budget deficit also could put downward
pressure on the dollar. Deficits force Uncle Sam to issue more
debt, requiring the government to offer marginally higher yields
to attract investors. Now, when deficits are modest, as they
have been in recent years, they can actually boost the dollar
because foreign investors buy dollars to buy more bonds.
However, it's possible that as we begin running US$1 trillion
annual deficits -- which likely will occur in 2009 and 2010 due
to the costs of the financial bailout and the massive stimulus
package -- foreign investors will balk, because they'll be
concerned about our ability to finance debt down the road.
Investing in the U.S. government may no longer seem a prudent
measure, and China and other countries may choose to spread
their wealth around. If that happens, and I expect that it will,
the dollar will suffer.
Consider that demand for the dollar has been driven not only by
foreigners investing in our government bonds, but in other U.S.
assets as well. To put it mildly, those investments did not
perform well in 2008. As the financial crisis subsides, foreign
investors may look to emerging markets for investment, rather
than the U.S., and stop buying as many dollars as they had in
the past.
But if I think the long-term decline in the dollar that began in
2002 will continue because of these factors, why was it
interrupted in 2008?
The financial crisis that exploded in October led to a flight to
safety. U.S. Treasury bills remain the creme de la creme of
safe-haven investments, and their yields plunged (with some
dropping as low as zero) at the height of the panic. As a
result, the demand for dollars soared. Other factors
contributed, too -- including the steep drop in the price of
oil, which puts upward pressure on the dollar as speculators
tend to own one or the other as a hedge.
We've discussed this before, but the falling dollar is good news
for U.S. investors who own foreign securities. When you buy a
foreign stock, you are effectively exchanging dollars for
another currency. So when that currency rises, so does the value
of your investment -- and the dividends it pays -- when
converted back into dollars.
Here's a real-life example: Between April 2003 and April 2008,
the Brazilian stock market gained +440.8%. But because the
Brazilian currency, the real, also soared against the U.S.
dollar during that time, American investors in Brazil's index
enjoyed a +930.7% total return. The falling dollar contributed
more than half of the total return from Brazil. I think 2009
will be a good year for us in part because the dollar will fall
against most currencies, boosting our returns.
Almost any foreign stock, or a fund or ETF investing in them,
will benefit from the falling dollar, with few exceptions.
That's because the dollar's downward move, if dramatic enough,
probably will occur against all other currencies. However, some
countries and types of stocks will benefit more than others.
Countries that produce commodities, such as Canada and Brazil,
could benefit. Stocks of manufacturers who export to the U.S.
would be hurt by a lower dollar, because their products seem
more expensive to U.S. consumers. That's why I tend to recommend
manufacturing stocks of companies that sell their products
around the world, not only to Americans.
Oil stocks in particular also tend to benefit directly from a
lower dollar -- causing oil prices to rise.
[http://www.streetauthority.com/includes/editor-profiles-hyi.htm]
Disclosure: Editor Nick Lanyi does not own shares of any stocks
featured in this newsletter.
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