Thursday, October 30, 2008

Dollar makes the world go round

The two charts above show what has happened to the value of the dollar when compared to the Pound(top) and the Euro(bottom) over the last 30 days. Just about anywhere in Europe or the British Isles, everything has gotten 20% less expensive over the last 30 days for Americans with dollars. It appears that everybody wants to own dollars at the expense of selling just about everything else they own.

Just imagine that you owned German stocks at the beginning of September and most of your investments outside of Germany were in Euro based investments. As long as your money stayed in Germany, you were fine. However, if you had money invested outside of Germany in Euro’s, you would be down the market fall plus an additional 20% on the currency loss.

The dollar has appreciated a great deal in a short period. I expect that we will get some correction in the dollar in the next month or so. I do believe that the dollar will reassert itself when the European Central Bank and the Bank of England have to lower interest rates considerably to try to stave off recession. I think we could see a dollar value for the EURO at $1.00 and at least $1.25 for one pound perhaps even more, depending on how theses economies fare over the next 12 months.

With increasing demand for dollar dominated investments, American investments are the quickest way for a foreign investor to play the strength of the dollar. They will sell their stocks and bonds and move their money to the United States. These foreign investors have already been big buyers of American Treasuries and they will move into stocks as the EURO and The Pound fall.

Look for the US Markets to outperform the other major markets in the world over the next 12 to 24 months, reversing the most recent 5-year pattern. The rest of the world is finally beginning to understand there is only one currency in the world, THE US DOLLAR.

Dan Perkins

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