DOLLAR SHEKEL STABILITY
One of the most common questions that I receive from clients is how to preserve the value of their portfolios in the face of a sinking U.S. dollar. While I answer that it’s important for people living in Israel to hedge against a potential fall in the dollar, I think that investors need to take a slightly more macro-approach in what is really happening with the greenback against the shekel. While all currencies move up and down on a daily basis, the fact is that the USD/shekel has been remarkably stable over the last three years. This graph demonstrates that since the end of November ’07 we have been nearly spot on 3.8 USD/NIS.
While a strong shekel gets the headlines it’s important for investors to drill down a little bit and see what is actually happening, and in our case what is actually happening is that the dollar is stable.
Stronger Dollar?
While the dollar has been falling globally since the Korean War, it has had periods of strength. Those periods of strength have also corresponded to big stock market moves higher. While conventional wisdom says that a weak dollar is good for exports which will help the U.S. extricate itself from the nasty recession, the fact is that a weak dollar is horrible for the economy. Aside from the fact that it is inflationary, rarely good for any economy, a weak dollar often means a weak economy. It means that foreigners don’t want to invest there, and local companies move operations overseas. Just think about Israel over the last 7-8 years. You have a stronger/stable currency and global investors have poured in billions and billions of dollars to invest here. This was not happening back in the day of high inflation and weak shekel/lira.
Elections
One of the least talked about ramifications of the recent massive Republican gains in the mid-term elections is the impact on the currency. The fact is that the dollar has rallied since the election. My gut feeling is that if the Republicans can show the world that they are serious about implementing fiscal constraint and put the reins on government spending, the USD will continue to strengthen. The Americans need to show that they are serious about tackling both budget and debt issues, and if they buckle down and do it, and it appears that progress is being made on both fronts, the dollar will again become attractive.
After all, the alternatives to the dollar are nothing to write home about. As I write this article, pressure is on Ireland to accept a European bailout. We could see Italy and Portugal facing these same issues shortly. While until this week the currency market still seemed deaf as to sovereign credit crisis within the euro zone, it appears that once again this issue is coming front and center. So the Euro has problems and the Japanese economy is really screwed up as they try and work through their own debt issues. This potentially leaves the USD as the big winner in the global currency wars if, and I admit it’s a big if, the US can get it fiscal house in order.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il
