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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: smolejv@gmx.net who wrote (40452)	10/31/2003 3:53:16 AM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 74559

Hi DJ, Sorry to have taken so long to respond... How come? Here's one practical answer - flight out of IOUs into the substance. When the US$ declines, the value of any given company hasn't necessarily declined along with the currency. Yet a cheaper currency directly imputes to a cheaper stock price. So the price of the stock should rise by nearly exactly the decline of the currency, presuming no other factors have changed. The problem is that, as investors, we tend to view the price of the stock in a static manner, forgetting to take into account the effects of currency changes on the prices of the stocks. The counter argument is that a US-based company with a US$-based stock price does decrease in value because its cash and other assets (also calculated in US$s) are now worth less relative to other currencies. However, most companies have hedged this risk via currency markets, via international holdings of their assets, and via international sales of their services and products. So the actual currency risk is quite small, though perceived to be very large when we witness a severe adjustment of currencies, one against another. The bottom line is that a cheaper US$ is actually quite good in both the short term and the longer term for many US corporations. The only real exceptions that I can think of would be companies who have absolutely no international exposure and no currency hedges. I really can't think of any large cap stocks in the US that meet that description. Yeah, there's some small caps (like restaurants) that have US only assets and markets, but the bigger firms that dominate the markets (in terms of US$s) all have international exposure. KJC