U.S. Dollar (USD)

The U.S. national debt sits at more than $11 trillion dollars - double its total from 10 years ago. With that amount of debt, some are questioning the dollar’s status as the world’s reserve currency.

However! There is a silver lining!

By investing abroad, you’ll see your dividends increase in dollar terms as the U.S. dollar falls.

For example, between July 2001 and April 2008 the dollar lost 46% of its value relative to the euro. Let’s say that over that time, a European stock paid 5 euros a year in dividends. In 2001, you’d have received just US$4.20 in exchange. But after the dollar fell, that same 5-euro payment would be converted to US$8.00 in 2008 - an increase of over 90%, even though the actual payment didn’t increase by one cent.

And investing abroad isn’t as exotic or complicated as you might think. Many foreign companies trade on the NYSE. They simply make dividend payments in their native currency and translate them to dollars for U.S. investors. In addition, several full-service and discount brokers offer direct access to foreign exchanges denominated in foreign currencies.

Either way, as the dollar declines, your income and the value of your dividends will increase in dollar terms. And given how enormous deficits and continued foreign investment will take their toll on the dollar, this boost could happen sooner rather than later.

An increasing number of top investors are betting on the dollar, feeling that the euro, pound, and yen in particular are over-valued. Dodge and Cox, perhaps the best-regarded large mutual fund family, this week chose to hedge its currency exposure in its main International fund.

Lawrence Fink, Chairman and CEO of Blackrock stated that they believe the U.S. dollar to be the best long-term currency to protect wealth. Coming from BlackRock, that’s a strong endorsement.

Relatively unknown prior to the financial crisis, BlackRock advised a substantial group of “A-listers” on what to do during the collapse. The result is that BlackRock now counts itself as having the largest amount of funds under management. That’s $1.307 trillion^[1].

1. ↑ "BlackRock Gives “Ups” to the Dollar" Article from InvestmentU

The worst is over. It will rebound in the next 6 months.

This is not a long term opinion. The dollar corrected after its big run up (see the UUP chart) and does not appear to be ready to dip down further at the moment. The price of Gold is still not strengthening as much as some have predicted (they're not wrong, just early :-) When Gold begins another move up, it will be time to sell the dollar.

The dollar is trading at lows that are forcing long-term capital allocation decisions to go towards the US. In fact more small public companies are planning to move operations to the US in the next 12 to 18 months. A great way to play the dollar and get underlying growth is to buy shares of US technology companies. Higher costs are making technology a better investment, valuations are low and many of the larger firms have substantial international exposure. So the asset value will increase with the dollar, and sales benefit from stronger non-dollar currencies in the meantime.