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U.S., Greenback losing ground
Americans do not like being in second place — or third or fourth for that matter. Yet almost daily, we hear news of the U.S. economy slipping compared to other countries and the value of the dollar declining against other currencies.
The United States dominated the world markets and economies for more than a century, but that placeholder now appears to be in jeopardy.
Investments are still labeled as domestic or foreign; however, I expect those lines will soon be blurred into all global holdings. Some of our largest domestic corporations such as McDonald’s, Microsoft and Coca-Cola get the majority of their revues from overseas. Therefore, they could be considered global stocks.
American stocks are shrinking in the world markets. U.S. companies make up about 30 percent of the value of the world’s publicly traded companies. Ten years ago, we made up more than 50 percent. Wall Street has lagged behind most of the rest of the world's markets so far this year, and investors who have not diversified to other countries may have missed out.
A U.S. decline doesn't have to mean bad news for investments long-term. Fast-growing economies do not necessarily produce sustainable returns, and slow-growing ones are not necessarily bad. It depends how much you pay for assets and what potential they hold. Right now, U.S. blue-chip stocks may be a good value for investors since emerging markets have experienced a huge gain already.
The declining dollar continues to be a concern as other countries are growing faster than the United States. With the stock market uncertain, the economy coming out of recession and the deficit piling up, the greenback is under tremendous pressure. As of this writing, the Euro is valued at $1.50, the worst dollar valuation since April 2008.
But the investor may need to find something else to worry about since usually a weak dollar spurs growth in the equities markets and commodities. Yes there is always a concern about inflation, which is why many investors buy more growth components to hedge against future inflation. The weak dollar confirms that approach.
The dollar's true value is a complex calculation that changes constantly. I believe it is a relative number and has further reaching concerns than just how much money one can spend while visiting Europe. The economic trends that have punished it this year are still in place, suggesting it has further to fall. U.S. interest rates remain low, government borrowing is high and the economy is expected to remain weak. The greenback continues to lose its luster as investors ignore it in favor of faster growing assets.
U.S. officials have done little to stop the decline, in part because a weaker dollar benefits U.S. exporters and helps the Federal Reserve fight deflation. Despite the decline against the Japanese Yen and the Euro, the dollar seems to be roughly in line with the British pound and remains ahead of the Chinese Yuan.
The future of the dollar and other currencies depends largely on what the world’s central banks do to unwind the extraordinary measures they have taken to stabilize their economies.
Meanwhile, the United States still runs a trade deficit of some $31 billion. It was cut in half by the deep recession but has edged higher lately as imported oil prices have risen and consumers have tiptoed back to stores to buy cheap imported goods.
Chinese officials have expressed alarm about rising U.S. government budget deficits, a long-term threat to the dollar's value. The stimulus and low tax revenues helped foster a U.S. budget deficit of roughly $1.4 trillion in fiscal 2009, the worst since 1945. A weak recovery could keep the red ink flowing for some time.
There are many unanswered questions regarding how many nations will pay for their stimulus including ours. Once again, it appears we are all in this together. Therefore, it is doubtful we will remain the largest or the most independent economy in the world.
Patricia Kummer has been an independent certified financial planner for 22 years and is president of Kummer Financial Strategies Inc., a registered investment adviser in Highlands Ranch. She welcomes your questions at www.kummerfinancial.com, or call the economic hotline at 303-683-5800. Any material discussed is meant for informational purposes only and not a substitute for individual advice. Investing is subject to risks including loss of principal invested.
The United States dominated the world markets and economies for more than a century, but that placeholder now appears to be in jeopardy.
Investments are still labeled as domestic or foreign; however, I expect those lines will soon be blurred into all global holdings. Some of our largest domestic corporations such as McDonald’s, Microsoft and Coca-Cola get the majority of their revues from overseas. Therefore, they could be considered global stocks.
American stocks are shrinking in the world markets. U.S. companies make up about 30 percent of the value of the world’s publicly traded companies. Ten years ago, we made up more than 50 percent. Wall Street has lagged behind most of the rest of the world's markets so far this year, and investors who have not diversified to other countries may have missed out.
A U.S. decline doesn't have to mean bad news for investments long-term. Fast-growing economies do not necessarily produce sustainable returns, and slow-growing ones are not necessarily bad. It depends how much you pay for assets and what potential they hold. Right now, U.S. blue-chip stocks may be a good value for investors since emerging markets have experienced a huge gain already.
The declining dollar continues to be a concern as other countries are growing faster than the United States. With the stock market uncertain, the economy coming out of recession and the deficit piling up, the greenback is under tremendous pressure. As of this writing, the Euro is valued at $1.50, the worst dollar valuation since April 2008.
But the investor may need to find something else to worry about since usually a weak dollar spurs growth in the equities markets and commodities. Yes there is always a concern about inflation, which is why many investors buy more growth components to hedge against future inflation. The weak dollar confirms that approach.
The dollar's true value is a complex calculation that changes constantly. I believe it is a relative number and has further reaching concerns than just how much money one can spend while visiting Europe. The economic trends that have punished it this year are still in place, suggesting it has further to fall. U.S. interest rates remain low, government borrowing is high and the economy is expected to remain weak. The greenback continues to lose its luster as investors ignore it in favor of faster growing assets.
U.S. officials have done little to stop the decline, in part because a weaker dollar benefits U.S. exporters and helps the Federal Reserve fight deflation. Despite the decline against the Japanese Yen and the Euro, the dollar seems to be roughly in line with the British pound and remains ahead of the Chinese Yuan.
The future of the dollar and other currencies depends largely on what the world’s central banks do to unwind the extraordinary measures they have taken to stabilize their economies.
Meanwhile, the United States still runs a trade deficit of some $31 billion. It was cut in half by the deep recession but has edged higher lately as imported oil prices have risen and consumers have tiptoed back to stores to buy cheap imported goods.
Chinese officials have expressed alarm about rising U.S. government budget deficits, a long-term threat to the dollar's value. The stimulus and low tax revenues helped foster a U.S. budget deficit of roughly $1.4 trillion in fiscal 2009, the worst since 1945. A weak recovery could keep the red ink flowing for some time.
There are many unanswered questions regarding how many nations will pay for their stimulus including ours. Once again, it appears we are all in this together. Therefore, it is doubtful we will remain the largest or the most independent economy in the world.
Patricia Kummer has been an independent certified financial planner for 22 years and is president of Kummer Financial Strategies Inc., a registered investment adviser in Highlands Ranch. She welcomes your questions at www.kummerfinancial.com, or call the economic hotline at 303-683-5800. Any material discussed is meant for informational purposes only and not a substitute for individual advice. Investing is subject to risks including loss of principal invested.
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