International Investments in Non Dollar Investments Offers Potential


International investments are one way to protect your wealth and investments against the loss of purchasing power created by a falling US dollar. Investments in multi currencies provides investment protection and opportunity for increased profit in your investments. International investments make sense because global investing and business are part of a natural economic evolution. International investments have outperformed US investments for years.

International investments that short the greenback can make your life better.

A reader recently sent this note asking about international investments and what might happen to the global strength of the USA dollar.

Gary, International investments are important because Australian Treasurer Peter Costello has called for an orderly withdrawal from U.S. dollar. An article about this said:

“Peter Costello has called on East Asia 's central bankers to ‘telegraph’ their intentions to diversify out of American investments and ensure an orderly adjustment. Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channeled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates. Mr Costello said ‘the strategy had changed’ and Chinese central bankers were now looking for alternative investments. Of course you can have an orderly adjustment," he told reporters. "And what I would recommend is that these matters be telegraphed well in advance. I think we should begin preparing ourselves for it."

Won’t this force the Fed to put additional upward pressure on interest rates in an attempt to shore up the dollar? Won’t higher interest rates put downward pressure on U.S. real estate? — Steve

This reply to is worth considering.

This is not a simple issue, but touches on the most tangled Cat’s Cradle of currency fundamentals one can imagine.

If the fed tries to maintain the value of the US dollar and raises rates, yes higher rates could place some downwards pressure on real estate. However the Feds job is not to maintain the dollar but contain inflation. To guess the Fed’s response inflation is the force we need to anticipate…not the dollar’s parity to other currencies.

A weaker dollar would increase inflation by making imported goods less expensive. This, however, would be counter balanced by making US products and services less competitive. This reduces US sales and business, reduces jobs and thus dampens inflation. The unknown is the balance of these two impacts and which will count most.

It would appear that the US Treasury department wants a cheaper dollar. Ben Berneke, while in China, called China’s undervalued currency, “an effective subsidy” for importers that was distorting trade.

This is a paradox because one of the main reasons the US dollar has maintained strength is because China and other Asian nations have been buying dollars in the form of low yielding, long term US dollar bonds. The value of the dollar is bound to fall before these bonds mature so they are sure fire losers in the long run.

However Asian politicians may continue supporting the greenback. Pandora’s box has been opened. Asians expect better lifestyles and higher living standards. Dash their hopes, and they will revolt. The Asians want America ’s continued spending to keep the Asian miracle moving along.

In other words there are three forces created via the world’s expanded economic globalization. Each interlinked…each is contradictory and each is important.

Force #1: A strong US dollar helps Asia emerge and become rich because Americans can afford to buy lots of cheap Asian goods.

Force #2: A rich Asia can make investments in the US that prop up the US dollar.

Force #3: The strong dollar reduces US competitiveness which makes it harder for Americans to be rich so they can buy cheap Asian goods.

What happens goes way beyond just the parities of currency. A stable growing China is good. An affluent society will want a stable Southeast China and will help take care of the North Korean issue as well as emerging Vietnam, Laos, and others poor areas left in this region. An emerging China also needs oil and thus stability in the Middle East. Though China will compete with the US and Europe for this resource, friendly competition is good.

The list of benefits gained from a triangle of affluence (Asia, North America and Europe) can hardly be comprehended. Let’s hope for a slow steady drop in the dollar that lets Asia continue its rise but does not hurt US businesses too much.

Next comes the issue of whether real estate will fall in the US, if the US dollar does drop and if the US dollar interest rate does rise.

I think not. US real estate is still so cheap compared to most major cities in Europe and Asia. Supply is limited and demand continues to grow. I think standards will drop rather than price. To date, this has happened again and again.

When we boomers were young, just the husband worked (normally) and most middle class families had a house just for the family with a yard. Everyone had a bedroom.

Over the years the spouse has had to add a job. Building materials and quality have dropped. More and more families have had to share homes and the idea of condos (where everyone shares the yard) have grown.

Which will happen? Got a coin? The toss will give as good an answer as any lengthy analysis. My bet is Asian support, a slow drop of the dollar and steady real estate growth for now. I may be wrong but I am buying more real estate now during the current drop.

Buying real estate with low interest long term US dollar mortgages may be very profitable as it was in the 70s.

Until next message, may you home in on international wealth!

Gary

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