Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Weaker Dollar vs Cheap Intl Equities
Old 07-23-2019, 02:48 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,224
Weaker Dollar vs Cheap Intl Equities

Hypothetical question. If all the clamoring I'm hearing about a weaker US dollar going forward is true, would it make sense to throw some cash at International equities? I realize there are reasons for the current valuations but I'm wondering if a currency play with a cheaper dollar in the future would help when bringing the cash back home? Just askin

In a nutshell use the current high dollar to buy International on the cheap.
__________________

__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-23-2019, 03:25 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 6,989
Quote:
Originally Posted by foxfirev5 View Post
Hypothetical question. If all the clamoring I'm hearing about a weaker US dollar going forward is true, would it make sense to throw some cash at International equities? I realize there are reasons for the current valuations but I'm wondering if a currency play with a cheaper dollar in the future would help when bringing the cash back home? Just askin

In a nutshell use the current high dollar to buy International on the cheap.
The issues you mention are currently baked into the pricing of stocks and the dollar. Do you have any new data? I don't.
__________________

Lsbcal is offline   Reply With Quote
Old 07-23-2019, 03:38 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Mar 2009
Posts: 2,224
True. I realize I'm venturing into speculation, but would like some input regarding how things will go.
To put things into perspective I just mentioned this to DW. She quickly responded - " Sure our dollars would go a lot further in Cocoa Beach but we're still sticking with Key West". End of Story.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
foxfirev5 is offline   Reply With Quote
Old 07-23-2019, 04:02 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 6,989
Quote:
Originally Posted by foxfirev5 View Post
True. I realize I'm venturing into speculation, but would like some input regarding how things will go.
To put things into perspective I just mentioned this to DW. She quickly responded - " Sure our dollars would go a lot further in Cocoa Beach but we're still sticking with Key West". End of Story.
I trade very infrequently based on trends of pricing. Price data should roughly reflect the up to the second news. But there is also a momentum component which research indicates is robust. Currently this points to staying in US stocks versus international. You are trying to anticipate a trend change and I wish I had a reliable way to do that but I donít.
Lsbcal is offline   Reply With Quote
Old 07-23-2019, 05:24 PM   #5
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,657
Quote:
Originally Posted by foxfirev5 View Post
Hypothetical question. If all the clamoring I'm hearing about a weaker US dollar going forward is true, would it make sense to throw some cash at International equities? I realize there are reasons for the current valuations but I'm wondering if a currency play with a cheaper dollar in the future would help when bringing the cash back home? Just askin

In a nutshell use the current high dollar to buy International on the cheap.
One of the reasons I am comfortable with our total world stock strategy (VTWSX,VT) is that IMO the dollar has more downside than upside. The problem is timing; I was told maybe 20 years ago by a couple of Harvard professors that the dollar was going to crash against the yen. The only question was whether the crash would be fast/panicky or slower. I'm still waiting.

The world hates us and would love to dethrone the dollar as the world's reserve currency so we can't use our banking system any more to punish people we don't like. But the candidates list is weak. Nobody trusts the Russkies or the Chinese. The Euro zone has big problems with the southern members and the South Americans seem to go backwards at least as often as they go forward. So there is no imminent candidate.

If/when the dollar is dethroned, the reduction in demand will result in a slide in value. Remember, though, the aphorism about short selling: "The market can remain irrational longer than you can remain solvent." So I am not a speculator. YMMV.
OldShooter is offline   Reply With Quote
Old 07-23-2019, 07:33 PM   #6
Full time employment: Posting here.
 
Join Date: Oct 2011
Location: London
Posts: 625
I just maintain a consistent fraction of my asset allocation in international equities. Like all the other parts of my AA, I use new money to gradually nudge back towards target AA as things move around.

If the dollar weakens, the value of those equities should increase and I will buy less. When the dollar strengthens, I automatically buy more as part of my normal purchasing process.

No thinking needed...and no temptation to try to time anything.

I would suggest the same approach rather than trying to, essentially, time the currency markets.
__________________
Luck is when Preparation meets Opportunity.
Closet_Gamer is offline   Reply With Quote
Old 07-23-2019, 08:47 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 6,989
The currency markets move second to second. It is silly to think one can figure out where the dollar will be next month let alone in some years. And international stocks do not have to be driven by the dollar direction.
Lsbcal is offline   Reply With Quote
Old 07-31-2019, 01:56 AM   #8
Thinks s/he gets paid by the post
 
Join Date: May 2014
Location: Utrecht
Posts: 2,650
Quote:
Originally Posted by foxfirev5 View Post
If all the clamoring I'm hearing about a weaker US dollar going forward is true, would it make sense to throw some cash at International equities?
Not really. Take Facebook for example: what happens when the dollar weakens? Plenty of income and costs are in other currencies. Same thing with the other way around: Inditex is in theory a Spanish company, but with a large sales presence in the USA.

And both are affected differently depending in how (if at all) they hedge currencies.

If you are convinced the USD will drop vs. other currencies, buy those other currencies directly. Otherwise you have too many complicating factors.
Totoro is offline   Reply With Quote
Old 07-31-2019, 06:06 AM   #9
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
If the Dollar gets weaker, our goods and services are cheaper to foreign countries. Out tourism increases for foreign tourists. International Companies can allocate their capital across their foreign subsidiaries.

The weaker dollar may be better for US companies, than foreign indexes or funds. It may cause the S&P to rise more than the international.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 07-31-2019, 06:14 AM   #10
Thinks s/he gets paid by the post
 
Join Date: Mar 2012
Posts: 1,531
Quote:
Originally Posted by Senator View Post
If the Dollar gets weaker, our goods and services are cheaper to foreign countries. Out tourism increases for foreign tourists. International Companies can allocate their capital across their foreign subsidiaries.

The weaker dollar may be better for US companies, than foreign indexes or funds. It may cause the S&P to rise more than the international.
At the same time, for US consumers it makes foreign travel more expensive and foreign goods and services more expensive.
njhowie is offline   Reply With Quote
Old 07-31-2019, 07:12 AM   #11
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
Quote:
Originally Posted by njhowie View Post
At the same time, for US consumers it makes foreign travel more expensive and foreign goods and services more expensive.
Exactly, and then US consumers spend more on US made goods. That strengthens US companies.

Which tells me that the USD will not get too weak, the rest of the world won't let it. They need a strong dollar to get their trade deficit subsidy.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 07-31-2019, 07:35 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 25,433
Quote:
Originally Posted by Senator View Post
If the Dollar gets weaker, our goods and services are cheaper to foreign countries. Out tourism increases for foreign tourists. International Companies can allocate their capital across their foreign subsidiaries.

The weaker dollar may be better for US companies, than foreign indexes or funds. It may cause the S&P to rise more than the international.
Yep exactly. Weaker dollar tends to make the US markets rise anyway - foreign investors taking advantage.

Quote:
Originally Posted by Senator View Post
Quote:
Originally Posted by njhowie View Post
At the same time, for US consumers it makes foreign travel more expensive and foreign goods and services more expensive.
Exactly, and then US consumers spend more on US made goods. That strengthens US companies.

Which tells me that the USD will not get too weak, the rest of the world won't let it. They need a strong dollar to get their trade deficit subsidy.
Agreed.

Right now dollar is pretty strong. Lots of Americans enjoying foreign travel and contributing to overtourism.

If dollar weakens, we get a big tourism influx in the US. We’ve seen it before.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 07-31-2019, 08:34 AM   #13
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,657
Re weaker dollar, be very careful what you wish for. For example, consider what would happen if the value of the dollar declined by 20%.

Everything priced on world wide markets would go up by 25%. Oil, plastics, chemicals, rubber, steel, aluminum, ... Also most grains. Consumer electronics, clothing, ... There's almost no product you can name that will not be affected.

So you'll buy domestically? Consumer electronics with minimal non-US content? Good luck. Clothing made in the US from US-made cloth? Good luck. Cars made with primarily US content? Good luck. Also your barbers and beauty operators, your lawyers and accountants, your roofers and lawn services? All going up in price because they now have to buy things at higher prices.

This is inflation that is immune to control via practical monetary and fiscal policy. It will probably hurt the FIRE crowd the least, but government transfer payments to the poor and those with marginal incomes will rise only slowly, as will Medicaid, Medicare, and nursing home payments.

Good for US companies export sales? Yes, over the long term. But the factories that manufacture those exports mostly don't exist yet (Boeing and maybe Caterpillar being the exception.) And the investment to build those factories? From outside the US. US citizens will not have the cash.

Bottom line is that after a decline in dollar value the the US GDP will buy a lower standard of living for us all. Painfully lower in some cases.

Will the hit be the full 25%? No, because this change will reverberate around the world. But regardless of exactly where the number ends up, nobody in the US will be having any fun.
OldShooter is offline   Reply With Quote
Old 07-31-2019, 09:02 AM   #14
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Sheltered in place
Posts: 31,843
The US$ (real trade weighted index) fell by 24% between 2002 and 2008. The US CPI didn't pick up, the balance of trade didn't improve, and for most of that period tourism to the US didn't rise.

Other factors influence the economic impact of a change in the exchange rate. The effect is also different on a large currency (Yen, Euro) vs a reserve currency (US$) vs a hard currency but smaller GDP (UK, Swiss) vs a soft currency. Debt, for example, has a major impact.

The British pound, for example, has seen periods of incredible volatility over the past 20 years, but it is not easy to correlate those with changes in domestic production, balance of trade or tourism.

Much of what we believe we know about the effect of changes in exchange rates applies to countries with softer currencies.
MichaelB is offline   Reply With Quote
Old 07-31-2019, 09:10 AM   #15
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,657
Quote:
Originally Posted by Totoro View Post
Not really. Take Facebook for example: what happens when the dollar weakens? Plenty of income and costs are in other currencies. Same thing with the other way around: Inditex is in theory a Spanish company, but with a large sales presence in the USA.

And both are affected differently depending in how (if at all) they hedge currencies.

If you are convinced the USD will drop vs. other currencies, buy those other currencies directly. Otherwise you have too many complicating factors.
Wow. Hard to know where to start with this.

55% of the world stock market cap is outside the US, as is 95% of the world's population. Here's a list of companies: https://en.wikipedia.org/wiki/List_o...ies_by_revenue Note that yhou have to get below the top ten before very many US companies show up.

We Americans tend to be fairly jingoistic in our investing. I don't really understand this. A quick search, though, produced 3.5% as the number of us who travel internationally in any given year (https://www.huffpost.com/entry/the-g...sspo_b_1920287). So I suspect ignorance of the world is a big factor in our investment decisions.

Re holding foreign currency the big risk is the timing of any devaluation. The old wisdom for shorts applies here, I think: "The market can remain irrational longer than you can remain solvent." Then there is the little problem of diversification. Euros? Yen? Dinars? Rand? Yuan? Bolivars? English Pounds? ....

Thanks, I'll continue to hold thousands of non-US stocks together with our US stocks via VTWSX and VT.
OldShooter is offline   Reply With Quote
Old 07-31-2019, 09:20 AM   #16
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,657
Quote:
Originally Posted by MichaelB View Post
The US$ (real trade weighted index) fell by 24% between 2002 and 2008. The US CPI didn't pick up, the balance of trade didn't improve, and for most of that period tourism to the US didn't rise.

Other factors influence the economic impact of a change in the exchange rate. The effect is also different on a large currency (Yen, Euro) vs a reserve currency (US$) vs a hard currency but smaller GDP (UK, Swiss) vs a soft currency. Debt, for example, has a major impact.

The British pound, for example, has seen periods of incredible volatility over the past 20 years, but it is not easy to correlate those with changes in domestic production, balance of trade or tourism.

Much of what we believe we know about the effect of changes in exchange rates applies to countries with softer currencies.
Yes, but IMO the risk is that the USD will gradually or suddenly lose its status as the world's reserve currency. Basically everyone hates us and would like to see that happen. Timing? Who knows? Our status is buoyed every time one of the candidate replacements (Euro, etc.) stubs its toe, but the intermediate "basket of currencies" may come sooner because it is easier to implement. But no one knows.
OldShooter is offline   Reply With Quote
Old 07-31-2019, 09:47 AM   #17
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Sheltered in place
Posts: 31,843
Quote:
Originally Posted by OldShooter View Post
Yes, but IMO the risk is that the USD will gradually or suddenly lose its status as the world's reserve currency. Basically everyone hates us and would like to see that happen. Timing? Who knows? Our status is buoyed every time one of the candidate replacements (Euro, etc.) stubs its toe, but the intermediate "basket of currencies" may come sooner because it is easier to implement. But no one knows.
The US$ as reserve currency is a fascinating topic. Everyone in the world wants another currency for that role, but so far the volunteer room is empty. Like the Mark Twain comment "Everybody talks about the weather but nobody does anything about it."

For the time being, its fair to say there is no viable option to the US$ as global reserve currency. For better or for worse, this in part allows us to continue in our profligate ways. Everyone benefits, and someday there will be a reckoning.
MichaelB is offline   Reply With Quote
Old 07-31-2019, 12:01 PM   #18
Thinks s/he gets paid by the post
OldShooter's Avatar
 
Join Date: Mar 2017
Location: City
Posts: 4,657
Quote:
Originally Posted by MichaelB View Post
The US$ as reserve currency is a fascinating topic. Everyone in the world wants another currency for that role, but so far the volunteer room is empty. Like the Mark Twain comment "Everybody talks about the weather but nobody does anything about it."

For the time being, its fair to say there is no viable option to the US$ as global reserve currency. For better or for worse, this in part allows us to continue in our profligate ways. Everyone benefits, and someday there will be a reckoning.
I agree pretty much.

I would observe, though, that there are volunteers. Just not ones that are qualified. Putin was pushing to include the ruble in a basket of currency, but the viability of that ended with Crimea. The PRC would offer the yuan but no one trusts them. The Euro was maybe a candidate until the warning flags in Greece and Portugal and now the alarm bells in Italy. IIRC at one time the Real was discussed but the South Americans seem to have a talent for screwed up economies. So ... no qualified volunteers.

Re continuing profligacy, yes again, but the old rule is still out there: "If something can't go on forever, it won't." Hopefully the S will not HTF during our retirements, but it is not out of the question.

Formal risk management considers probability, impact, and cost to mitigate. A major devaluation is probably low probability but high impact. Fortunately, IMO anyway, a global portfolio is useful mitigation and is a wise thing to do anyway. So, minimal or zero cost.
__________________

OldShooter is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Equities- Intl vs US? Gearhead Jim FIRE and Money 41 07-24-2016 09:28 AM
A new thread on Other Topics: Poll: Replace the Dollar Bill with a Dollar Coin? kyounge1956 Other topics 38 08-16-2010 04:44 PM
Questions, strong dollar or weak dollar ? frayne FIRE and Money 7 10-01-2007 07:59 PM

» Quick Links

 
All times are GMT -6. The time now is 12:16 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×