At the end of last year I advised you, dear reader, to ditch those fusty old dollar-denominated assets and to pick up foreign currency denominated assets.
So how's that working out?
Well, you would have been better advised to invest in oil futures, that's for sure. And that may still be good advice. But the oil thing is outside my area of expertise, and if you did follow my advice you're doing relatively well regardless.
Not to boast... okay, to boast. Pretty much nakedly. Anyway, our foreign denominated assets are: foreign oil companies, so we've done really well in the recent past.
So at the end of last year, the euro would buy $1.18. I predicted a continued rise, based on that whole complicated repatriations of earnings thing outlined in that column, and gratifyingly the exchange rate rose almost immediately, topping $1.22 towards the end of January.
But then, it fell! By mid-February, the dollars-per-euro rate was back down at $1.18. Why?
I have no idea.
As I have indicated, I'm doing this with macro economics. It's a bit like painting an easter egg using an eight-inch roller. Not terribly exact, and a lot of things unforeseen by me can have an effect.
So, were I writing this in February, you might have reason to feel misled. You wouldn't have lost any money, but neither would you have gained any.
But macro is broad trends, and the forces operating to weaken the dollar are really quite large and one-sided. Since early March, they've taken back over again; today the Euro hit an all-time high against the dollar, one euro for $1.26.
It won't be stopping.
Interestingly, there are an array of forces aligned against the dollar weakening, most of them in Asia. The Asian countries know one and one model only: export-driven growth. So they don't want a weak dollar, and have poured $180 billion this year alone into staving it off.
However, adding more sandbags may keep the river back, yet if there's no sign of the rain ever stopping...
Anyway, we just moved another big chunk of cash offshore, as it were. Picked up shares in Rio Tinto, the worlds third-largest mineral extraction firm, based in Australia, and of Woodside, Australia's largest oil extraction company. Even if there's a global economic slowdown, I don't see China's domestic demand for natural resources shrinking, so oil and minerals are good sectors to be in as those billion people keep sucking more and more of them up.
And if I seem enamored of Australia, it's not because of the beer. It's because the Australian economy is one of the least tied to the American economy, and with so much of my wealth tied up here in the states (i.e. my home) I am still looking for regional diversification.
I would still advise you, if you have money sitting around in a checking account or somewhere, to get it out of dollars. Or, as per an earlier column, if you must keep it in dollars use it to invest in American mineral extraction, since a cheaper dollar for those companies translates directly into more sales. But better yet would be to get it out of dollars entirely.
That rain just keeps falling, and although (with a change of government) the forces against the dollar may - in the more-distant future - subside uneventfully, we may instead see a breach and a flood. And you don't want to be in all dollars if that happens.
- Sun Ra
Columns by Sun Ra