As the U.S. economy continues to
sputter and the dollar weakens,
some domestic investors continue to look for and find ways to make sound
investments. And where Americans once
enjoyed a favorable rate of exchange
when traveling to countries, such as
Canada, those benefits are now being
reaped by citizens in other countries.
“The weaker dollar has affected U.S.
companies by either international investments or international travel by consumers,” says Cody Wagoner, a business
banking relationship manager at Wells
Fargo Bank. “Just our purchasing power
has decreased through the depreciation
of the dollar.”
Smart Business asked Wagoner what
U.S. investors are doing to stay competitive until the dollar regains its strength.
With the weakened dollar is this still a good
time to be a U.S. investor?
Looking at the U.S. dollar to the euro,
American vendors can’t raise their prices
fast enough to match the rate of depreciation. From Jan. 1, 2001, to Jan. 1, 2005,
the dollar lost 52 percent of its value
against the euro. Back in 2001, for 85
cents you could buy one euro. Today, it
will cost you between $1.50 and $1.60.
That is a major change.
Has the dollar ever been this low before?
In my nine years in the banking industry, the dollar hasn’t been valued this low
versus foreign currency such as the euro.
Just over the last four years, it has
changed significantly. In May 2004, one
euro cost $1.19 and today (accurate as of
June 6, 2008) it is $1.56. In that same time
frame, it has been as high as $1.60 and as
low as $1.16. And it’s not just against the
euro. The dollar has depreciated against
just about every foreign currency.
Has this affected the way U.S. investors
invest globally?
There are always good returns, we just
have to put in more initial capital. We need to invest more to get that same dollar return since our purchasing power
has depreciated. Americans used to go
to Canada for vacations because goods
and services were cheaper there than
they were here. One dollar used to get
you $1.60 in Canadian currency. Not
anymore.
Has the weakened dollar hurt U.S.
investors?
It depends. It has helped those who
previously had foreign investments or
had purchased foreign currency and
held on to it, waiting for the returns to go
up. Go back to the scenario of $1.19 for
one euro four years ago rising to $1.56
today; that is a 32 percent return over
four years. So if investors had already
invested internationally, it helped them.
Likewise, in the same way that it helps
exporters, the current currency environment creates challenges for companies
that import materials. This is especially
true for firms that import finished consumer products.
Are foreign countries taking advantage of
the weakened dollar?
Absolutely. If you were to pull up U.S.
export numbers you would see they are
increasing. If I’m in Germany and I can
get a 50 to 75 percent discount if I buy
from the United States, that’s what I’m
going to do.
On the flip side, foreign investors are
buying American companies and real
estate at a tremendous discount. A specialist told me Canadians are flocking to
Florida and buying up properties left and
right because they are getting them so
cheap. What costs $250,000 to us is
$125,000 to them.
Foreign investors are acquiring
American investments at a discount, and
when the dollar rebounds they will sell
and make a sizeable return. Foreign
investors can reap benefits coming and
going.
Why has the weakened dollar caused the
price of oil to rise?
All global commodities are priced in
U.S. dollars. So with the weakening dollar and less purchasing power it drives
prices up. If there’s a long-term history
of the dollar being down then that might
change. I think some members of OPEC
have complained about it recently; I’m
sure if we stay in the tank long enough
then prices may eventually be based on
the euro or some other globally recognized currency. However, everyone
wants the market to be somewhat stabilized, and they don’t want to make major
swings on an annual basis.
CODY WAGONER is a business banking relationship manager at Wells Fargo Bank. Reach him at [email protected] or
(713) 383-1607.