Recent raise in dollar is just a correction...
October 30, 2009
– Comments (13) |
RELATED TICKERS: ERX
, BDD
, UDN
I simply don’t understand recent raise in dollar last week. If there is problem in any economy, its currency drops. We all agree that due to tremendous deficit and other economic problems, dollar should loose value.
I am investor with heavy long positions and I love drop in dollar values. Isn’t this statement contradictory? Yes it is but that’s how I am making money. Here is my thesis why I love low dollar and how it is beneficial for everyone in US esp. stock market.
1) Drop in dollar bringing spike in commodity prices (oil, base metals, gold etc)….All the stocks in sectors like basic materials and energy grow with decreasing dollar automatically.
2) Foreign investors still finding US market tremendously cheap. For us, Dow has reached 10,000 but for Europeans it is still at 8000. 40% raise in market has been offset by 25% drop in dollar value. Some rough estimates, you can do exact calculations.
3) Major Dow components l GE, IBM, Wal-Mart, Apple etc. reports increase in earning due favorable exchange rates their losses here in US compensates with more profits outside. Low dollar helps them to increase profits from foreign business
4) Six months back when Indian Rupee and Chinese Yuan were dirt cheap, I was sending my dollars to these countries. Recently I've started booking profits on my forex trades. Converting Rupee and Yuan back to dollars. I am sitting on heaps of dollar cash....what I should with these dollars? Obviously buy commodity and energy stocks at dips. Everyone is doing same.....emerging currencies have appreciated so rapidly in last six months, its risky to keep money outside at this point. Make sense to bring it back.
5) Cheap currency brings tremendous boost to export. Mantra of this decade "Cheap and competitive currency, Better Economy". Business in India and China love cheap Rupee and Yuan respectively. That’s how they've achieved growth in last decade. We find their goods and services cheap and that’s why we buy it. They make more profits we get cheap goods. A win-win situation for both. Think other way....What if dollar is dirt cheap. Immediately we will stop buying from India and China and we will start selling them. In summary, it has potential to bring manufacturing sectors back to US.
6) There is strong correlation between high currency values and immigration patterns. A skilled or professional worker (doctor, software developer, lawyer etc.) from developing country comes to US because they get higher salary when they convert it back to their native currency for exactly same job and same work. Millions of these people unwillingly move to places with high currency values. If dollar comes down to extent that they don’t see marginal benefit in leaving their native country. Conclusion...Low dollar has potential to increase number of jobs for Americans in America.
In summary, I think over longer period of time we will realize added benefits of low dollar and will use it as weapon for recovery. Any authentic news from White house in this direction??? Please add in your comments.
PS. I hold positions in ERX, BDD, TGB, ATPG.
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