Tags: Interest Rates, Japan

Eleven Ways to Profit From the Falling U.S. Dollar

By , Chief Investment Strategist, Money Map Report •

Keith Fitz-GeraldKeith Fitz-Gerald

By Keith Fitz-Gerald
Contributing Editor

Every year I talk with thousands of investors around the world and invariably the Number One question I'm getting lately is: "What's up with the dollar?"

That's completely understandable.

But it's actually what's "down" with the dollar that matters when it comes to setting the stage for your own global greenback rally.

The reason is that the ultra-cheap greenback makes buying U.S. assets and investments super cheap for those around the world who are flush with Yuan, Euros, Yen, Dinar - or any other currency against which the dollar has dropped.

We've seen this phenomenon before.

In the late 1980s, the hyper-inflated Japanese stock-and-real-estate markets enabled Japan to go on an unprecedented global shopping spree - taking advantage of the cheap-dollar Easterners. I know this personally, for I was a consultant working with Japanese companies that were laying out these revved-up dollars for both financial assets and real property.

Here are three reasons why we'll see a repeat performance:

  • With the dollar declining as it has, it's unavoidable. It's a trend you can basically bank on seeing again. The benefit is that it will provide important clues about where the "smart money" from overseas is going to invest.

  • Second, a cheaper dollar actually provides a powerful incentive for global market makers to establish new financial linkages between previously unconnected markets and instruments. The net result will be an increased fluidity between the world's exchanges. And that can only broaden your investment choices by ultimately opening up presently inaccessible markets. Some recent examples of this sort of transaction include the Dubai stock exchange, which just acquired a 19.9% share in the Nasdaq, and Qatar's state investment agency, which recently purchased 20% of the London Stock Exchange, and nearly 9.9% of the Stockholm-based OMX.
  • Third, a cheaper dollar actually enhances America's exports by making them less expensive for the rest of the world. Ultimately, this has a positive effect on our employment base and helps stabilize our own consumer spending. But the real magic is that increased U.S. exports help mitigate the rapidly burgeoning U.S. trade deficit, which is inevitably a lightning rod for critics of the U.S. economy.

I realize that most of this is probably too theoretical for such an early morning read, so let me turn to some more practical thoughts - like how to profit from the falling dollar.

That's actually the easy part.

Cheap Dollar Deals

There are literally thousands of companies fueling the global boom right now. But the key is to spotlight the leaders - the firms that are generating big-dollar deals abroad.

My favorite tactic, and one that I've written extensively about in the past, is to invest in globally diversified U.S. companies and ADRs traded on American exchanges that derive a majority of their sales overseas. Examples include such companies as AFLAC Inc. (AFL), Exxon Mobil Corp. (XOM), PepsiCo Inc. (PEP), and Yum Brands Inc., (YUM) - most of which derive up to 70% of their sales from overseas.

These sales, I might add, grow in value every time the dollar declines further [** See footnote at story's end].

Plus, these companies pay dividends, which are always a nice benefit.

Other choices worth considering include major American exporters in such industries as electrical equipment and defense contracting. No. 1 U.S. exporter Boeing Co. (BA), Honeywell International Inc. (HON), Lockheed Martin Corp. (LMT), and Raytheon Co. (RTN), spring to mind.

If exchange-traded funds (ETFs) are more your style, you may want to consider the SPDR Global Titans (DGT) and the PowerShares International Dividend Achievers Portfolio (PID). Both have benefited handsomely from the extra juice a falling dollar has provided, and are likely to continue to benefit in this way in the months to come.

Of course, you could also play the currencies, and more directly, too. My favorite choice in that arena is the PowerShares DB G10 Currency Harvest (DBV), which is up 11.64% so far this year.

In closing, let me state emphatically for the record - and for all the strong dollar advocates who are no doubt foaming at the mouth over my comments-that I don't like a weak dollar any more than you do.

In fact, I can't stand it because every time I travel overseas (and that's frequently), I feel like I get mugged when I pull out my wallet. And I especially don't like seeing my cost of living increasing the way it has recently.

But when it comes to investing, what I like is really immaterial.

What matters is this: There are choices that I can make that will offset the huge cost-of-living increases I'm seeing here at home by earning bigger profits abroad.

And that's the bottom line.

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[** This situation is known as a "translation gain." You see, sales are made in a currency that's rising in value against the dollar - perhaps the euro. When the quarter closes, that money has to be repatriated back to the U.S. headquarters, as do all revenue and profits. But since the dollar has fallen in value, that foreign currency will now buy more dollars than it would have at the start of the quarter. Thus, the company's profit base is magnified by the dollar's decline.]

Keith Fitz-GeraldKeith Fitz-Gerald

About the Author

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Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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