A few weeks back, I predicted that the U.S. dollar would become even more volatile heading into September.
And that’s exactly what’s happening.
In fact, it fell again this morning for the sixth month in a row – the longest declining streak in 14 years.
Now this is extremely important because the price of the dollar can affect anything from the price you pay for a gallon of milk to the value of your 401(k).
But it doesn’t have to hurt you…
All you need to know is how to profit – no matter where it goes from here.
Where to Put Your Money When the U.S. Dollar is Weak – and Strong
President Trump shocked many when he said the U.S. dollar is too strong. He said this back before his inauguration and was referring to China’s valuation (or in his words, “manipulation”) of their currency, the Yuan, when making these comments.
What shocked so many people about his statement was that common belief that a strong dollar is a great thing. But keep in mind that it’s not necessarily a win-win situation for everyone. That’s what can make the mainstream’s media coverage of the price of the dollar so hard to digest sometimes, like how a weakening dollar can account for a spike in oil prices.
So let’s talk about the basics…
A “strong dollar” allows the U.S. to buy more goods from a foreign country. This can be good for Americans who buy foreign products, like electronics or pharmaceuticals, because it costs less to buy them. On top of that, a strong dollar benefits those traveling overseas on business or vacation because it’s less expensive to travel and pay for lodging, food, and transportation.
On the flip side, a “weak dollar” means that the U.S. can’t buy as many goods from a foreign country. In turn, it becomes more expensive for Americans to pay for foreign products and to travel abroad. That’s because there’s less purchasing power than with a strong dollar, so Americans are left to make up the difference in prices on imported goods.
But there’s a good side and bad side to both scenarios…
When the dollar is strong, we can buy the things we need and want for less, which means we can get a lot more bang for our buck, so to speak. However, it costs more to manufacture U.S. goods overseas, which could affect the ability to sell these products. This could eventually lead to shrinking margins and, therefore, shrinking profits. And that could ultimately result in lost U.S. jobs due to halting, shutting down, or moving operations to another country altogether.
A weak U.S. dollar is often considered a bad thing because of the higher costs to export goods and services, especially overseas. But a weak dollar can be good in that exports can sell for much more. And the more that American companies can sell their goods at higher rates, the better the impact on sales and revenues. This not only keeps the companies in operation – it can also lead to growth and more jobs. And job creation is a great thing for the stock market.
Fortunately, there’s a way to invest – and trade options – in a strong and weak dollar environment…
As a mutual fund investor, consider investing in funds with foreign exposures that stand to profit when those underling securities improve as the U.S. dollar strengthens. And as it weakens, consider rebalancing your portfolio into funds with more domestic exposure.
The same applies to stock investors… Consider isolating those companies with less exposure to foreign markets when the U.S. dollar is strong. Utility companies are good examples, such as Duke Energy Corporation (DUK) or the media goliath, Comcast Corporation (CMCSA).
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In times of a weak dollar, U.S. manufacturers with a large presence overseas could be a wise consideration. One of the largest is Caterpillar Inc. (CAT), where more than 40% of their overall revenue comes from overseas sales (according to a February report from USA Today). A weak dollar makes the cost to produce their products cheaper, and the better exchange rate can go farther in purchasing those products.
And when it comes to oil, as I referenced above, the U.S. could export more oil than it imports by 2026 if current trends hold. When a U.S. company exports more and more product, the money made in foreign currencies, once converted against a weak dollar, actually means more dollars.
One of the biggest multi-national stocks to track and consider investing in is McDonald’s Corporation, (MCD). It’s one of the most recognized brands all over the world and has its business in a great many other countries besides the U.S. A weaker dollar can benefit a multi-national company like MCD greatly because the cost of production is much less while the consumption of its product makes for a healthier and more robust bottom line. And the more and more Big Macs and French fries that are consumed every day by people in countries whose currencies are beating the dollar, the more MCD’s shareholders benefit.
And as for options traders, I would say longer-term strategies are the way to go but only during periods of strength or weakness in the U.S. dollar. This means you may not likely be able to “time” an entry for long calls or puts, as there won’t really be any reports coming out that will necessarily cause the dollar to spike or drop. What could impact that are concerns over North Korea and inflation. That’s also why you’ll want to keep a close eye on how the dollar is doing and make the necessary trading and investment decisions from a more medium- to longer-term perspective.
To your continued success…