The Declining U.S. Dollar: Free Report

Steve Chapman,
Vice President and Portfolio Manager Weiss Capital Management, Inc.

With the U.S. Dollar Index now trading well below its previous low of all time â€¦ with its value now risking a virtual free-fall â€¦ and with the Fed’s latest rate cut adding even more impetus to its decline â€¦ virtually every market in the world is being impacted:

Gold has pierced the $800-per-ounce level, making headlines in the national news, reawakening gold fever, potentially setting the stage for safe-haven panic buying of the yellow metal.¹
Crude oil has surged to $94 per barrel in part due to ongoing geopolitical tension in the Persian Gulf and dwindling oil supplies.²
Despite new highs in the U.S. stock averages, foreign stock markets are surging five, even ten times faster.

That’s why I believe â€¦

The Time to Take Decisive,
Protective Action is Not
Tomorrow or Next Year.
It’s Now.

Unfortunately, however, I feel most people still don’t understand the far-reaching consequences of the dollar’s decline.

And I get the distinct impression that some even go so far as to welcome the dollar’s decline as a quick-and-easy fix to the nation’s bulging trade deficit â€” short-term possibly, long-term, no way. They figure it’s like declaring a store-wide sale on everything made in America. And they hope that will make it easier for the U.S. to sell its goods overseas.

That’s the theory. The actual practice, however, is another matter entirely: The U.S. dollar has been sliding virtually nonstop for five years. But during that same period, the U.S. trade deficit has grown by leaps and bounds. That tells me the ignore-the-dollar-to-fix-the-deficit tactic just isn’t working.

Meanwhile, the impact on Americans â€” already reeling from the housing mess and already pinched by rising fuel costs â€” is growing by the day:

First, we face the imminent prospect of surging prices for everything we import.

Years ago, that might not have made much of a difference. But when you go shopping today â€” for big-ticket items or just everyday stuff â€”
it’s actually getting hard to find products that are not imported or are not made from imported components and materials. That includes â€¦

Almost every gallon of gasoline.

Nearly every automobile.

Virtually all computers, electronics and home appliances.

Even many of the other products that you use in your everyday life.

Second, when foreign savers and investors lose confidence in the U.S. dollar, we could lose access to the money they lend us as creditors.

Why is that such a big deal?

Simple: For the past generation or more, while foreign investors have been busily pinching pennies and saving every dime they possibly could, millions of Americans have been merrily borrowing and spending.

Problem: This borrow-and-spend-foreign-money binge has become a national pastime at all levels: Millions of homeowners. Big banks and mortgage lenders. And biggest of all, the U.S. Treasury Department itself.

In the 1980s, it was the Japanese that lent us most of the money. In the 1990s, the Germans took the lead. And now, the Chinese have emerged as big lenders to the U.S.³ But regardless of nationality, I think virtually all would say â€¦

“As long as the dollar’s decline is gradual, OK. We can cover the loss by charging a higher rate of interest. But once the dollar starts sinking uncontrollably, we need to cut back, back off, or even pull out.”

And unfortunately, that’s the risk we now face.

The potential consequences? Many:

Less money to finance everything from home mortgages to the federal budget deficit â€¦
Higher interest rates on mortgages and Treasuries, even if the Fed is lowering short-term rates â€¦
A significant, additional drag on the U.S. economy, and â€¦
Less foreign money flowing into the U.S. stock market.

My view: If you’re an investor, and your portfolio is too heavily weighted to U.S. stocks and bonds, you’re in danger of coming up short-handed â€¦ unless you diversify your investments to overseas markets.

That’s what I do.

I’m Vice President and Portfolio Manager at Weiss Capital Management, an SEC-Registered Investment Adviser, and a separate affiliate of Weiss Research. My specialty is managing strategies that help our clients diversify their portfolios with investments that have the potential to â€¦

Benefit from rising foreign currencies â€¦

Benefit from rising foreign stock markets, and

Protect their portfolios from the falling dollar.

You get â€¦

Lower risk â€” Adding an allocation of foreign securities to your portfolio provides the potential to offset some of the volatility of your U.S. holdings.
Greater diversity â€” U.S. equities used to account for a majority of the world’s capitalization. Not anymore. In 1983, the U.S. represented approximately 57% of the world’s investments. By 2006, the number had dropped to 45%. Given the rapid acceleration of markets in countries in Eastern and Western Europe as well as Latin America and Asia, it’s likely that the U.S. share will continue to diminish. Diversifying in foreign markets offers you a larger playing field.⁴
Higher dividends â€” Foreign companies often offer higher dividend yields than those of American companies that use their cash for growth, acquisition and excessive compensation instead of returning the money to shareholders in the form of dividends.
Bigger profits â€” While the U.S. economy is under severe pressure from the declining dollar, the mortgage and housing crisis, and rising consumer prices, emerging areas of the world such as China, India, the Asia-Pacific region and South America are experiencing phenomenal growth. In fact, the Chinese economy is already close to surpassing Germany as the world’s third-largest economy. That’s why U.S. investors are flocking to foreign investment â€” in an effort to score gains that might not be available through U.S. equities.⁵
Optimal investment opportunities â€” The annualized average returns of most of the world’s developed financial markets are currently significantly outpacing those of U.S. equity markets.⁶

All things considered, there’s no reason to sit on your hands and patiently wait for conditions to get better while your life savings and future retirement income may be at stake â€”when you could be participating in the burgeoning global economy.

You should remember, however, that there are times when you may want to tread lightly or even back off. But overall, I believe the global expansion unfolding today is revolutionary.

Striking While the Iron is Hot

There are numerous ways to diversify your financial portfolio globally, including:

Exchange Traded Funds (ETFs) that represent foreign stock indexes: China, India, Brazil, Singapore, South Korea, etc.
Exchange Traded Funds that put your money in foreign currency deposits: In the euro, Japanese yen, Australian dollar, Canadian dollar, the Mexican peso and more.
Mutual funds that are in the business of carefully selecting the best-performing global stocks and sectors.
Options on Exchange Traded Funds for much greater leverage, and
World Currency Optionsâ„¢ offered by the Philadelphia Stock Exchange, traded just like stock options, and offered on all major world currencies.

Each of these alternatives has advantages and varying degrees of risk, with options having the most risk, depending on your individual investment objectives, and all require thoughtful consideration.

That’s why our team at Weiss Capital Management has created a special report entitled â€¦

“The Declining U.S. Dollar:
Why You Can’t
Afford to Ignore It”

For your free copy, call us at 800-814-3045. Or just click here.

But whatever you do, don’t simply keep your fingers crossed and hope that things will eventually get better. At a time when the U.S. dollar is faltering badly, your financial security may depend on portfolio diversification â€” and the sooner, the better.

Best wishes,

Steve Chapman, Vice President
Weiss Capital Management, Inc.
www.weisscapitalmanagement.net
800-814-3045

¹ www.marketwatch.com, Gold Surges above $800 to highest level since 1980 [November 2, 2007]

² Id, Crude rises as strong payrolls fuel demand for oil, Moming Zhou and Polya Lesova [November 2, 2007]

³ Department of the Treasury/Federal Reserve Board [October 16, 2007]

⁴ Morgan Stanley Capital International (MSCI) for the 48 countries represented in the MSCI All-Country World Index

⁵ CNNMoney.com, China GDP growth fastest in a decade, [January 25, 2007]

⁶ MSCI; RIMES year-end 1987 through year-end 2006

Important Disclaimers

Diversification does not guarantee against loss.

International investing presents certain risks not associated with investing solely in the United States. These include, for instance, risks related to fluctuations in the value of the U.S. dollar relative to the values of other currencies, custody arrangements made for the foreign securities, political risks, differences in accounting procedures, and the lesser degree of public information required to be provided by non-U.S. companies.

The risks of trading options can be substantial. Options are not suitable for all investors. Please read carefully the options disclosure document, Characteristics and Risks of Standardized Options, for a complete outline of these risks.

About Money and Markets

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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, Julie Trudeau, and Dinesh Kalera.

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