Can a Sinking Dollar Actually Make You Money?

Few people give thought to how much a burger costs in Botswana, but the global value of our currency could have huge implications here at home. The U.S. dollar has been under pressure in recent months, but what does that really mean to us?

First, lets explore some advantages to a strengthening dollar:

• Lower prices on imported goods.
• Lower inflation rate.
• Lower costs when traveling and investing abroad.

But, believe it or not, there are also some disadvantages to a strong currency:

• U.S. firms find it harder to compete with cheaper imports (so they outsource jobs).
• U.S. firms find it harder to export and sell goods abroad.
• Tourism hurts because it’s more expensive to visit the U.S.
• It is also more difficult for foreign governments and investors to provide us capital.

China and other developing countries have been accused of purposely devaluing their currency because of the advantages a weak currency affords. Could the U.S. economy actually be benefiting from the weak dollar? Here are some advantages a weakening currency provides:

• U.S. firms are more profitable when exporting to foreign markets.
• U.S. firms don’t have to export jobs to stay competitive domestically.
• Foreign tourists can afford to visit the U.S. and spend money here.
• U.S. capital markets become more attractive to foreign investors.

As we have noticed at the pump, there are also some disadvantages to a weak dollar:

• Higher prices on imports (like gas)
• Higher overall cost of living
• U.S. consumers find traveling abroad more costly.
• U.S. firms and investors find it harder to expand into foreign markets.

In an ideal world, all currencies would be valued at the same relative level to sustain stability and promote long-term growth. But this ideal is also an impossiblity because of the many factors that go into currency valuation.

My former employer coined the phase “you can’t predict but you can prepare”. So to protect your wealth from this eroding factor, many experts say to invest in global commodities and U.S. companies that export goods. Here are some low risk ideas to kick off your own independent research.

STOCKS: Coca-Cola Co. (KO) Procter & Gamble Co. (PG) Nike Inc. (NKE) McDonald’s Corp. (MCD) Pfizer Inc. (PFE)

Commodities: streetTRACKS Gold Shares(GLD) iShares Silver Trust (SLV) iPath S&P GSCI Crude Oil Tot Ret Idx ETN (OIL) PowerShares DB Precious Metals (DBP)

Despite some short-term disadvantages, a strong dollar really is in the best long-term interest of the US economy so here are some ideas for if and when the dollar starts to make a comeback:

DIVIDEND STOCKS: AT&T INC. (T) Bank of America Corporation (BAC) WACHOVIA CP (WB)

BONDS: iShares Lehman Aggregate Bond (AGG) iShares Lehman 20+ Year Treas Bond (TLT) iShares Lehman 1-3 Year Treasury Bond (SHY)

Disclaimer: These are not formal investment recommendations, only a summarized commentary from the online sources and experts below. They do not represent the opinions of YBPGuide or myself. Although, for full disclosure purposes, I do hold very small personal positions in PFE, BAC and TLT.

Investors should be cautious about any and all investment related recommendations and should consider the source and objective before investing. Various factors, including personal or corporate ownership, may influence an expert’s stock analysis or opinion.

All investors are advised to conduct their own independent research before making a purchase decision. In addition, investors are advised that past performance is never a guarantee of the future.

To find out more, check chicagofed.org, businessweek.com, and stocks.about.com.