The buzz on the “Street” is not the stock market rally, but the decline in the U.S. dollar. Since the beginning of 1999 through the present, the U.S. dollar has fallen over 21% against a basket of foreign currencies (as provided by Laffer Associates) in today’s Wall Street Journal.
It is true that when a currency drops in value, it makes that country’s goods and services cheaper for foreigners to buy. Yes our trade balance may improve some, because our goods and services are cheaper and we cannot afford to buy as much from our foreign counterparties. However, over the long term capital flees countries with declining currencies. Investors will stop buying U.S. government and corporate bonds, as well as stocks in U.S. companies. Bottom-line, they will dramatically pull back on investing in anything in the U.S. including real estate, private and startup companies since they will continue to depreciate against foreign currencies. This will result in businesses not able to get loans or investments to expand and hire more workers, or if they can get loans it will be at much, much higher interest rates, which results in lower profits and them becoming less competitive globally.
Unfortunately, you can’t see the effects of this occurring immediately. It is a slow and gradual process, much like the old adage of putting a frog in a pan of water. If you slowly increase the heat over time, the frog will not jump out of the pan but continually adjusts to the temperature change until it eventually dies. Also, a weak U.S. dollar is signal that the rest of the world lacks confidence in our economy, and sadly other foreign central banks have taken steps to try and help keep the dollar stable, but to very little success. A strong U.S. dollar and economy is important to other countries’ economies, but it is vital to us maintaining our standard of living. Many hope that actions are taken by the leaders in the U.S. to put economic policies in place that will invite capital / investment into the U.S., which will result in job and wealth creation for all. A declining U.S. dollar and talk of higher income taxes will only scare aware foreign investors.
In summary, depending on the client’s circumstances and objectives, I may include foreign, natural resource and precious metal investments to their portfolios as a hedge against potential inflation and a weakening U.S. dollar.
I’m not the only cautious advisor out there
The Wall Street reported this week that Vanguard Mutual Fund Group on Tuesday issued a note, cautioning investors about getting too giddy about the recent stock market rally. The note named four funds – a U.S large cap stock fund, international emerging markets fund, precious metals and mining and high-yield corporate bond fund whose performance year-to-date in 2009 could be subject to some down turns in the months or year ahead.
Trust me, I am not a pessimist and truly enjoy seeing the stock market rally; however, it is reassuring to see that I am not the only one who is somewhat cautious in the short-term.
Upcoming Events
Our Strategic Life Planning Director, Debra Kunz, MBA, CSLP, continues to speak and teach in the community.
October 14th – “7 Do’s & Don’ts to Cope with a Layoff”
Free education program.
Your next career move, money, retirement and family depend upon how you manage this life transition. Debra Kunz is facilitating this program at the request of the Village Presbyterian Church Career Transition Center. Contact Debra for information about presenting this program, and others, for your organization, 913-897-2074 or dkunz@iia-kc.com.
For a list of all upcoming events visit www.iia-kc.com/events.
Quotes
| “The secret isn’t counting the beans, it’s growing more beans.” Robert Goizeuta, ex- CEO of Coca Cola“If you find a path with no obstacles, it probably doesn’t lead anywhere.”
Frank A. Clark, writer “Dignity does not consist in possessing honors, but in deserving them.” Aristotle, philosopher “There’s a difference between a philosophy and a bumper sticker.” Charles Schulz, creator of Peanuts |
Tony Moeller, President
Integrity Investment Advisors, LLC
12721 Metcalf Ave., #202
Overland Park, KS 66213
tmoeller@iia-kc.com
913-897-2074
The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.
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