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Financial Planners Article Library

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World Food Prices
Correlation Drives Lower Volatility Portfolios
Mediocre Long Term Results
Van Eck Hard Assets Fund
Hussman Funds
Bill Gross
Steve Leuthold
Merger Fund Interview
Diamond Hill
Caldwell and Orkin
Leuthold Group Mutual Funds
Short History of Managed Futures
Differences between a Registered Investment Adviser and a Stockbroker
Risks of Managed Futures Investing
The New Roth 401(k) is Here
Illiquid Real Estate Investments: Are They Worth It?
A Primer On Managed Futures
Key Definitions For Managed Futures Funds
Investable Hedge Fund Indexes
The Survival Characteristics Of A Managed Futures Fund
The Arbitrage Corner
Just Who Is an Accredited Investor
The Alpha Hedged Strategies Fund
Is Staying Out of the Stock Market a Bad Idea?
A dollar decline: the good, the bad and the mediocre
How Interest Rates Affect Merger Arbitrage
REITS: an excellent portfolio diversifier, but should you invest in them?
How Volatile Can the Sock Market Be?
How Expensive is the Stock Market?
Q & A with Robert Arnott
Identity Theft Security Tips
8 Specific Tips
Help is On the Way 
Documents: Shred or Store
Protect Your Credit
 
Don't Fall for That E-Mail!
Applying for Credit: Check Your Credit Report First
Correct Credit Reporting Errors

Know the Score
 
Ways to Improve the Score
Section 529 Update
How to Find A Great Financial Advisor
REITS: A Great Diversification Investment
What is Risk?
Importance of Commodities
Small Business Tax Plan
Year End Tax Planning
Is it Time to Find a New Financial Advisor?
Risks of Traditional Investing
4 Steps to Secure Portfolio
Market Valuations
Economic and Securities Market Overview
Pre-59˝ Distributions
Saving for College
Evaluating Earnings
Your 401(k) Plan
Long Term Care Insurance & Tax Issues
Uncertain Times - Risk and Diversification
Businesses Receive Temporary Depreciation Bonuses 
Medical Practices Receive Temporary Depreciation Bonuses
Succession Planning: Developing A Plan for Your Business
Erisa Retirement Plan Law Spells Out Fiduciary Issues


A DOLLAR DECLINE: THE GOOD, THE BAD AND THE MEDIOCRE

The U.S. Dollar’s Recent History:

Aside from the past three years, during which the dollar has fallen approximately 37% before inflation, the dollar has strengthened considerably since its trough in 1995. This recent decline has occurred mostly against the Euro. Against a basket of currencies, the dollar has declined approximately 15%.

The Ramifications:

Nevertheless, a sharp decline in the dollar is worrisome. It may create a major shock to our economic system. While the federal government continues to spend us into another nearly $500 billion deficit in addition to our trade deficit which for the current year will probably exceed $600 billion, there could be other consequences. They include:

  1. Higher inflation due to the fact that the foreign goods that we so frequently import will cost more.
  2. With higher inflation, the Fed will undoubtedly raise interest rates.
  3. Higher interest rates will probably slow down the economy.
  4. A decline in the U.S. dollar would mean that foreign investors would not want to hold U.S. investments. Currently, foreign investors own approximately 11% of U.S. equities and buy 40% of all newly issued U.S. government securities.
  5. The stock market will become even more lethargic and will possibly decline in value. From 1985 to 1987, the U.S. dollar declined approximately 50% which culminated in the 1987 stock market crash.

The Good News:

U.S. companies will be able to raise prices as foreign goods producers face increased price pressures due to the increased prices in selling to U.S. consumers as a result of a declining dollar. Over the long run, a declining dollar would stimulate U.S. economic activity by improving U.S. competitiveness. A weaker dollar would cause foreigners to buy more U.S. goods and U.S. consumers less foreign goods. However, this economic growth will probably take at least a year, more likely longer.

The Short-Term Impact on U.S. Companies:

Generally, U.S. companies that do not have large foreign operations but sell goods abroad will benefit the most. Their goods will become less expensive; therefore, exports will increase. U.S. companies that have large foreign operations will in all likelihood not be impacted or will be negatively impacted. Companies that have the bulk of their sales and operations in the U.S. will probably be unaffected except that foreign competition selling goods in the U.S. may be selling their goods at higher prices.

In Summary:

In the short run, as the U.S. dollar declines, U.S. consumers, the stock market, the bond market and the economy will be negatively impacted. Longer-term, U.S. consumers, the economy and some U.S.-based companies will benefit. Naturally, this does not occur overnight. The U.S. government must take the painful first step of cutting spending and raising taxes. Only by narrowing the federal budget deficit and perhaps even balancing it can we avert major shocks to the economy.

 

For further information about evaluating the quality of a company’s earnings, call LOUIS P. STANASOLOVICH at (412) 635-9210.

Legend Financial Advisors, Inc.®
5700 Corporate Drive, Suite 350
Pittsburgh, PA 15237-5829
Phone: (412) 635-9210
Fax: (412) 635-9213
Toll Free: (888) 236-5960
E-mail:
legend@legend-financial.com
Web Site: www.legend-financial.com