Your Dollars Are Bleeding to Death

Even though I run an international investing service, and live and breathe international equities, this past week I found a statistic about the U.S. dollar that absolutely floored me.

Since Jan. 1, 2007, the U.S. dollar has declined against the following currencies: The Honduran lempira, the Mauritanian ouguiya, the Mozambique metical, and the Nepalese rupee. That's hardly a Murderers' Row of international currencies.

It doesn't really matter why
The reasons that the U.S. dollar has dropped are legion, but they primarily boil down to one fact: Americans buy more foreign stuff than foreigners buy our stuff.

That means foreign companies and countries have excess and unwanted dollars on their hands. So they sell them to others who also have a snootfull of dollars, and who don't necessarily want them, either. So the price gets lower, and lower, and lower. Now, to protect revenue, the Taj Mahal in India will no longer allow tourists to pay for tickets in greenbacks. Our currency is losing credibility and value.

It's the value part that ultimately matters. Fortunately, we don't have to be currency speculators to benefit from a dropping dollar. All you have to do is own companies that denominate their profits and losses in some other currency.

Easier done than said
Think of it this way. Between 2002 and today, Nokia's (NYSE: NOK  ) net income has risen 113% in euros -- the official currency of its home market, Finland.

But in the States, we don't invest in euros -- we invest in dollars. And in dollar terms, over the same period of time, Nokia's net income has grown 197%, to $10.5 billion. That's an enormous difference, and if you're invested in Nokia, denominated in dollars, you've benefited enormously from the declining dollar.

Everything else you do is in dollars
Of course, every time you fill up your gas tank, buy consumer electronics, or whatever, it doesn't feel like you're benefiting at all. There's a dirty little secret about declining currencies: They favor domestic industries over domestic consumers. So you could potentially benefit by holding American companies such as Boeing (NYSE: BA  ) , McDonald's (NYSE: MCD  ) , or ExxonMobil (NYSE: XOM  ) , which have substantial portions of their sales overseas and, in Boeing's case, can offer international customers more competitive pricing.

But they're still working in dollars. Why not invest in companies that do almost nothing in the U.S. dollar?

After all, you do everything in dollars. You earn dollars, you spend dollars. Doesn't it make sense to invest in euros, or reais, or pounds? Why not find companies such Brazilian energy firm Petrobras (NYSE: PBR  ) , Global Gains recommendation and Asian gaming company GigaMedia (Nasdaq: GIGM  ) , or European consumer products giant Unilever (NYSE: UL  ) -- all of which have much lower exposure to the greenback?

This is the core argument for diversification, and why I think that people who call international investing "riskier" than buying U.S. equities are demented, sad, and wrong (in no particular order). It's not that I'm declaring that the U.S. dollar is in a terminal decline, and that you should get as much money out of the U.S. as possible. I simply mean that by diversifying, you can lower your exposure to any single point of failure, and better protect your financial future.

Besides, have you checked out the growth overseas?
Of course, I wouldn't make this argument if the investment options available abroad were inferior to what we have here at home. For a long time, the differential between American shareholder protection and that of most countries overseas made foreign investing quite risky. But certain foreign markets have always had outstanding shareholder protection (Switzerland, Singapore, Australia), while others -- including Brazil, China, and Mexico -- are improving by leaps and bounds.

And besides, while the U.S. market was largely flat in 2007, many foreign stock markets continued a steady upward climb. Indonesia's market rose 50%, India's 46%, and Brazil's 144%. The great growth stories aren't in Terre Haute any more; they're in Jakarta and Bandung, Mumbai and Bangalore, and Sao Paulo and Rio de Janeiro.

Each month, my team and I seek out the best foreign investments for American investors in our Motley Fool Global Gains international stock investing service. You can see all of our research and recommendations, including a top picks for new money now, free with a 30-day trial. There is no obligation to subscribe.

Bill Mann is the advisor of the Global Gains newsletter. He bought gold and silver in 2003 and oil refineries in 2001. What's he buying today? He holds shares of no company mentioned in this article. GigaMedia is a recommendation of Global Gains. Petrobras and Unilever are Income Investor recommendations. The Fool has a disclosure policy that is so square, it can be divided by four.


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