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The Dollar Is Not “Strengthening”

18 May 2010 One Comment

Recent “strength” in the dollar has many America bulls saying, see, our financial situation is fine, after all, we’re way better than Greece!  The reality is that the Euro is just dropping faster than the dollar which provides the dollar relative strength against the Euro.  Measuring the value of the dollar against the Euro is pretty silly.  Yes it has an impact on exports which is important, but you can’t gain any realistic measure of “strength” by comparing fiat vs. fiat.  Only when comparing the dollar against gold can you get a feel for its strength.  And of course, when you do this, you get the reality that there is no strength.

Saying the dollar is rising due to Euro weakness is similar to the following: two boats are sinking, however one is sinking faster than the other, therefore, the other boat is rising!  Uhh, no.

The reality is that fiat currencies are in a race to the bottom or a race to zero.  Currently, the Euro is winning the race, but that can always change.  Even if the Euro ultimately wins, the dollars is still pursuing the same direction.  It’s important to invest in assets that will hold their wealth (dollars do not).

In the meantime, with continued Euro weakness, you could see weakness in export stocks that have the European market as a large revenue generator.  One of my stocks, Philip Morris Int’l (PM) is a graet example of such a stock.  With a weak Euro, the profits of PM are squeezed.  I like using this opportunity to pick up shares of PM.

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