Strange days
Dangerous times are upon us.
Late last week, the greenback punched through to a low against the euro -- $1.31 per euro, a level not seen since April 2005. Stocks took a bit of a dip, as the market heavies tried to decide whether early reports of healthy holiday sales could make up for the dip in U.S. currency: Is the dollar's newfound weakness a temporary thing? Or is there trouble brewing for stocks?
Unfortunately, it sounds like trouble to me. Call it the wages of success.
No good deed goes unpunished
The U.S. economy actually looks pretty healthy, especially after dodging a bullet last summer, when gas prices continued to gouge consumers at the pump. Back then, the expected slowdown in consumer spending hobbled many stocks, but clobbered retailers such as Target (NYSE:TGT), Wal-Mart (NYSE:WMT), and Abercrombie & Fitch (NYSE:ANF).
Since then, fuel prices moderated, consumer spending stayed strong, and most of these stocks have recovered nicely, along with the rest of the U.S. markets. But these happy days won't last long if the world loses faith in the dollar and starts moving money out of U.S. investments. And the more I look, the more likely that seems.
As fuel-driven inflation has cooled, the Federal Reserve has adopted more of a wait-and-see posture on interest-rate hikes -- prompted, I believe, by a fear of letting too much air out of the already hissing housing bubble.
Across the ponds
At the same time, many of the premier foreign economies -- I mean those in Europe and Japan -- are heating up. As Eurozone interest rate hikes become more likely, keeping money in dollars becomes less and less desirable. As economic growth in Europe and Japan (not to mention China and India) outpaces the likely growth in the U.S., foreign companies stand to reap greater benefits -- and that will make these companies all that more attractive to the world's investment capital.
Finally, as the dollar drops in response to this reality, many economists expect it to exacerbate the problem by creating a vicious cycle.
If that happens, we're likely to see a flight of capital from our shores, meaning less money to support the rich valuations currently seen in U.S. stocks.
Overseas opportunities
Luckily, it's easier than ever for American investors to move their money into quality overseas companies in expanding economies. Not only are there hundreds of foreign firms that trade on major American exchanges, but major foreign firms that don't have sponsored American depository receipts or shares (ADRs or ADSs) can still be purchased on the pink sheets. (I discuss that here.)
Some of my favorite dollar-poof-proof investment ideas involve strong franchises in the worldwide consumer staples business. Food producers such as Nestle or Brazil-based Sadia (NYSE:SDA) are good candidates, as these two are among the biggest providers of packaged foods to growing economies.
But with demand for energy on a constant updrift, I'm especially attracted to foreign firms that operate in this sector, because they can pass on costs. Integrated energy companies such as Eni (NYSE:E) and BP (NYSE:BP) come to mind, as do infrastructure providers such as Acergy (NASDAQ:ACGY) -- already up 75% this year.
Navigation aids
Of course, economic icebergs can sink ideas overseas as well, and we could all use some help navigating our portfolios across the waters. That's why we've got a whole team dedicated to global exploration. In fact, at Motley Fool Global Gains, we've already identified a pair of strong energy plays that we expect will pay handsome dividends in the years to come. We feature country reports and keep our eyes peeled for breaking news, and we're also building a lively international community, because at the Fool, we know that more eyes, ears, and brains mean better investing for all.
If you'd like to avoid overexposure to the dollar's drop, here's a chance to take that international journey with us: You can take a month-long tour, risk-free. That's a better warranty than you'll get from the greenback, and I guarantee that Global Gains will be a lot more fun.
At the time of publication, Seth Jayson had plenty of his money in foreign companies, but had no positions in any company mentioned here. He's a member of the Global Gains team. View his stock holdings and Fool profile here. Wal-Mart is a recommendation of Motley Fool Inside Value. Sadia is a Hidden Gems pick. Fool rules are here.
