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Savings Experiment: Snow RemovalThe markets moved significantly lower today as the dollar continued its free fall on news that China diversified its foreign currency holdings.
Over the last five years, the U.S. dollar has lost about 32% of its value compared to the euro (see chart below). What does this mean for you? Well, it means that 32% of the rise in the price of oil is due to the weak U.S. dollar. It means if you want to travel internationally, it is going to cost you about 1/3 more than it would have five years ago.
Some companies benefit from a weak U.S. dollar long term. Domestic agriculture like corn has been strong recently, and companies like Deere (NYSE: DE) that support agriculture benefit. Also, foreign tourists will find it more attractive to visit the United States as their euros will convert into more dollars. So Disney (NYSE: DIS) or Harrah's (NYSE: HAS) Las Vegas casinos could benefit. A weak U.S. dollar helps jobs domestically, as any company that is exporting will find its goods cheaper for foreigners to buy. But all foreign goods are going to be more expensive for Americans to buy.
The NYSE had volume of 4.3 billion shares, with 297 issues advancing while 2,991 declined for a loss of 272.26 points to close at 9,830.15. On the NASDAQ, 2.5 billion shares traded; 593 issues advanced and 2,450 declined for a loss of 76.42 to 2,748.76.
Stocks moving today included Washington Mutual (NYSE: WM), which fell $4.19 (-17%) to $20.04. Fannie Mae (NYSE: FNM) fell $5.60 (-10%) to $49.79. Citigroup (NYSE: C) fell $1.67 (-5%) to $33.41. In options there were 7.2 million puts and 8.5 million calls traded for a put/call open interest ratio of 0.85.
Kevin Kersten is an Options Analyst with InvestorsObserver.com. Disclosure note: Mr. Kersten owns and or controls a diversified portfolio of long and short positions that may include holdings in companies he writes about.
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Reader Comments (Page 1 of 1)
11-08-2007 @ 8:34AM
michael schneider said...
A weak dollar is to be expected in this environment but there is a difference between a weak dollar and a crashing dollar. Part of the market shock today was in both the continuing fast decline in the dollar and in China's comments suggesting that the low dollar will impact their investments. A crash in the dollar is what great investors like Jim Rogers (see Channeling Jim Rogers at http://www.Barrelomoney.com) and Marc Faber (see Marc Faber Channel at http://www.Barreloworld.com) have been concerned about. A weak dollar can help the export sector of the economy but a crashing dollar would both destroy purchasing power and create inflation pressure. The good news today in productivity and also in wages wasn't enough to balance out the fears of the dollar situation and the continuing woes in subprime and housing. Yet even Jim Rogers thinks the dollar is due for a bounce at some point. The fact that investors keep jumping back too early into financial and housing stocks probably isn't helping the market as the continuing bad news in those sectors keeps dragging the whole market down. Exporters are indeed helped by a weak dollar and also could gain from steady interest rates. Many defensive stocks could prosper in this situation as the economy slows, rates stay low and they reap profits from sales abroad. The market today was looking at the worst case scenario however.
11-08-2007 @ 2:37PM
Alouisis said...
Unfortunately, the dollar is not done dumping yet. Why? Because the government is hiding the true state of the economy. While they have been successful in doing this for a while, eventually, investors are discovering the real truth. Here is the real truth.
M3, the most complete measure of the money supply, is no longer reported leaving out components that show monetary growth of a staggering 14% per year. Next, GDP is not accurately reported leaving out components that drag down the number to an actual -2% growth. The inflation statistic is also fudged masking the true rate of 10%. Finally, unemployment is falsified, ignoring the heavily unemployed inner-city and discouraged workers by simply not including households those areas in any of the surveys and 'redefining' unemployment. The real unemployment figure is 12.5%.
Many commentators talk about the new competitiveness of American goods. What American goods? Most of our manufacturing is gone. This is ignorant feel good talk. We need to first speak the truth to understand our problems. Then we can work to fix them. Blind folded we cannot tell if we are moving forward fast or or falling toward the ground.
Our economy is on the skids and the government is intentionally misleading the people and the markets, a short term solution with disastrous results. BOHICA