Don't Fear the Dollar's Demise, Profit From It

In the first nine months of 2009, the U.S. exported $4.6 trillion worth of goods and services to foreign trading partners while importing $5.7 trillion. Using a little advanced math, we can see that we imported $1.1 trillion more than we exported.

This is hardly the first time this has happened. In fact, since the early 1970s, the U.S. has had a persistent and growing habit of importing more than it exports. In 1972, for example, the U.S. had a trade deficit of $3.4 billion, or roughly 0.3% of GDP. In 2008, that deficit had grown to more than $700 billion and nearly 5% of GDP.

But is this a bad thing?
To answer that, let's look at it from a different angle. Think about yourself as a sovereign country. On a monthly basis, you export your labor to an employer in exchange for a paycheck. You then import a variety of goods and services such as haircuts, cable TV service, and medical care.

Now here's an easy question: What happens when the sovereign country of You imports more than it exports?

If you said that the folks at Bank of America and Citigroup are smiling because you've been forced to take out personal and credit card loans, then go get yourself a cookie. And while those loans can provide a stopgap for a few months of heavy spending, we've all learned from the recent financial crisis that piling up debt on your personal balance sheet is a surefire recipe for calamity.

Not quite that simple
While the general idea is largely the same, the dynamics of international commerce are not quite as clear-cut as the budget for a single U.S. citizen.

A key factor in the difference is exchange rates. Without getting into a whole lot of yawn-inducing economics, as the U.S. continues to borrow from abroad to finance its voracious appetite for foreign goods, its erstwhile generous benefactors will get less excited about the potential for the country to handle its growing debt load. The likely result of this is a decline in the value of the dollar.

This is bad news for U.S. citizens, since foreign goods will suddenly become more expensive. It's no better for a plethora of U.S. companies that import basic materials and intermediate goods from abroad to make their products. Paradoxically, this will also hurt the foreign companies that sell into the U.S., because the dollars they earn in the U.S. will suddenly be worth less in their home country.

But it's not bad for everyone ...
Companies like Altria (NYSE:MO) and Verizon (NYSE:VZ) that do virtually all of their business within U.S. borders won't feel as much of an impact from the dollar's decline. However, as with any economic trend, Foolish investors want to find the companies that will benefit from the falling dollar.

Fortunately, investors don't have to venture into uncharted waters to take advantage of the falling dollar. How, you ask? Simply by investing in U.S. companies that earn a good portion of their income outside of U.S. borders.

Finding these companies isn't quite as easy as running a screen for low price-to-earnings ratio or high revenue growth, but there are plenty of them out there, and you've likely heard of most of them.

Source: Company filings.
*Most recent quarter.

Of course, while these companies allow investors to hedge their exposure to a falling dollar, foreign companies that have little or no exposure to U.S. currency can be an even more powerful way to profit from the dollar's demise.

While this can be an intimidating process, since U.S. investors are typically much less familiar with companies that don't do business in the U.S., the investing team at Motley Fool Global Gains aims to make investing offshore much less daunting.

Not only do the folks at Global Gains do exhaustive research from the comfort of Motley Fool headquarters, they also travel abroad to kick the tires on potential newsletter recommendations. In 2009, the team ventured out on trips to two of the most exciting growth economies in the world -- India and China.

If you'd like to check out which stocks the Global Gains team thinks are the best bets in today's market, you can peruse them all with a free 30-day trial.

Pfizer is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor recommendation. Johnson & Johnson is a Motley Fool Income Investor pick. 

Fool contributor Matt Koppenheffer owns shares of Bank of America, McDonald's, and Johnson & Johnson, but does not own shares of any of the other companies mentioned. The Fool’s disclosure policy has asked to be compensated in cookie dough ice cream. Not only does this hedge against the dollar, but it's the most delicious paycheck ever.