Today's Daily Angle comes from Wikinvest Wire member Contrarian Profits. You can read the full article on the Contrarian Profits Blog.
Is the drop in the dollar worth watching? Just like the sun will eventually shine its last ray of light, the mighty dollar will someday buy its last barrel of oil or its final container of Chinese imports.
We all know it is going to happen, so why bother discussing it. Right?
There is no doubt the world's currency of choice has more pressure stacked against it than ever before. But even with $12 trillion in debt and nearly a trillion of annual interest payments due within the next decade, the greenback is still stronger than it was just sixteen months ago.
While so many of us are betting against the dollar and calling for its demise, plenty more investors are using it as a security net, buying American treasuries to protect themselves in case the bottom really falls out.
With the sun someday going to fade, I could sit in my basement and wait for the big day to come, or I could live my life without worry.
It's the same thing with the dollar. We could bet against the greenback and profit as it drops, or we could forget about the minimal return potential and keep our eyes looking forward, where the real money is at.
No more Chicken Little
Here's the scoop. The dollar is likely to fade, at most, six percent below today's value against the Euro. That's major erosion for such a massively distributed currency, but six percent over a few years doesn't stack up to a hill of beans in the grand scheme of things.
I can list a couple of dozen stocks that are up by twice that figure today alone.
No doubt, you should pay attention to the dollar, as a six-percent decay in the value of the world's most important currency will change all sorts of valuations. But don't invest in the cause, invest in the effect.
The devaluing of the dollar is no surprise. Even a fifth grader can see what's ahead over the next decade. That's why there is so little investment potential directly in the currency. Yet, our stubbornness and human greed will not let our eyes focus on anything but taking advantage of the move.
Let that stuff up to the emotional investors.
While they are focusing on gold and the dollar, investments that will provide double-digit returns at best over the next few years, rational investors need to focus on the many other powerful market forces are at work.
The domestic equities market is a wonderful place to be right now, especially if the dollar is collapsing as fast as we believe it to be.
First, anybody exporting goods will see strong top-line growth as the dollar drops. A six percent fall from our currency equals an automatic six percent surge in revenue growth, without the need for any company to do a thing.
Next, if you are a follower of the green-energy craze, you had better be hoping for a weak dollar. The only thing that will ever wean this country from its dangerous addiction to oil is if crude becomes too expensive relative to our alternatives.
With a dollar that is still in demand across the world, dollar-denominated currencies like crude remain fairly inexpensive. But as Uncle Sam's reserves dwindle in value, crude prices will move inversely. That is good news for all you folks that took Obama's advice and invested in the "green" sector.
Finally, the markets run on a risk/reward relationship. The higher the risk, the higher the reward. The lower the risk, the lower the reward. Simple stuff.
If we all know the dollar should weaken, where's the reward potential? But don't even begin to think there is no risk in the play.
With Washington in charge, especially the current group of legislators, anything is bound to happen. And now that Obama has is political eye set on "saving the dollar," the road that lies ahead could be very foggy.
My advice? Watch the dollar. Take note of its moves. But invest in anything but the currency. There is better return potential, with much less risk, elsewhere.
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