>>Looks like the declining dollar (as rates plateau) will be good all around>>
In late 2004 with the $US slumping and more and more concern about the continuing willingness or even ability of the rest of the world to support US current account and budget deficits, a new tax break was legislated by the re-elected Bush Administration. In January 2005, the Treasury outlined the guidelines. Under these guidelines, US companies with foreign earnings could repatriate these earnings back to the US and pay a tax rate of 5.25% on them. This compares with the 35% corporate tax rates levied on domestic US earnings.
It was this gigantic tax break which pushed the US Dollar higher last year. The massive repatriation of earnings by US companies (converting these earnings into US Dollars in the process, of course) hit the massive number of "shorts" in the currency markets. This combination of corporate repatriations and short covering pushed the $US Index up over 12% last year.
The vast majority of the funds repatriated by US corporations under this legislation have gone into increased dividends, cash mergers, and stock buybacks. Since the market lows of October 2005, Intel has announced a $US 25 Billion stock buyback, Time Warner $US 12.5 Billion, DuPont $US 5 Billion, Honeywell $US 3 Billion, and Target $US 2 Billion.
This legislation was due to "expire" on December 31, 2005. I haven't been able to find any information as to whether this legislation was extended, but judging from the currency markets, I would say No. That was a key prop for the USD.
The Gold Market clearly discounted this in its late Fall rally. But there are other ways to play the 2006 USD decline without going into the Futures markets and buying the Euro. One can just buy a real good International Stock Fund. I own DODFX, Dodge and Cox International Stock Fund. They are based in the Bay area. This is some fund, low expenses, run by a very wise, high class outfit. Up 2.8% yesterday.
Once this REPATRIATION is exhausted, the US Dollar will be hanging in mid air with nothing at all to support it, except the continued demand of foreign Central Banks. That may be enough.
PS I have not set up any hedge yet (for my portfolio) nor established any short positions in the Gold market. The selling in December looks so far to have been clearly based on the irrational fear of another early January sell off. LOL. |
