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In today's Motley Fool Take:
- Your Dollar Is Worth Less
- Quote of Note
- California Craves Online Taxes
- Discussion Board of the Day: Living Below Your Means
- Mother Knows Best
- Make Mom Wealthy
- Quick Takes: Tax cut bill, Sears, Qwest Communications, more
- Help Wanted
- And Finally...
Your Dollar Is Worth Less
In early 2002, you only needed $0.89 to buy a euro. Today, you need a record $1.14 to buy a euro, an enormous 28% difference. The U.S. dollar is at four-year lows against the euro, meaning that if you're going to Europe this summer, expect everything to be considerably more expensive. So, what's going on with the falling dollar? And what does it mean to U.S. stocks?
The dollar is declining in value against most major world currencies for two primary reasons: The U.S. benchmark interest rate is set at only 1.25% (a four-decade nadir), which puts it among the lowest in the world. In comparison, Europe's benchmark rate is set at 2.5%. This makes investors move out of dollars to buy currencies that pay higher interest, including the euro.
Second, the U.S. trade gap recently topped $500 billion. The larger the trade gap, the more U.S. dollars are being sent abroad, lessening demand for them. Additionally, even with interest rates at record lows, demands for new capital are weak due to a poor economy and restrained customer spending. Essentially, everyone has battened down the hatches, keeping demand for dollars low.
The weak dollar might affect you directly in two ways. If you're traveling abroad, especially to Europe or Japan, you'll find prices aren't what they used to be. A Paris hotel room that cost the equivalent of $139 last spring will set you back about $175 today -- before you take any price hikes into account.
On the other hand, you might own stock in U.S. companies that benefit from a weak dollar. Consider Coca-Cola
Other international companies that stand to benefit include the likes of Gillette
The flipside was occurring in the U.S. three years ago, when the dollar was strong. Then, international sales for U.S. companies were converted downward in value when turned back into dollars. This is exactly the situation that European companies are complaining about now. The strong euro dampens sales results outside of Europe, and one dollar in U.S. sales becomes only about 0.87 euro back home.
As with most things in life, there is both good and bad to having strong currency.
Quote of Note
"Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well.... Slug it out one inch at a time, day by day. At the end of the day -- if you live long enough -- most people get what they deserve." -- Charlie Munger, Berkshire Hathaway vice chairman
California Craves Online Taxes
Facing an estimated $34.6 billion budget deficit through June 2004, California wants to collect more taxes from online retailers selling books, computers, and anything else to its residents. It's hardly a novel solution, and one that Gov. Gray Davis shot down three years ago. This time, however, with his state bleeding like a stuck pig, Davis may take what he can get.
California's Senate passed the measure yesterday. It still must make it through the whole Assembly, which seems assured. Proposed by Democrat Dede Alpert, the bill charges websites that have significant ownership with a physical presence in the state, or that offer repair or services in California, with collecting the sales tax due on purchases. The move shifts the burden of tax collection from the consumer -- who was supposed to be voluntarily paying the state sales tax anytime he or she bought anything online -- to the retailer.
While not explicitly named in the legislation, the two tax-avoiding bugaboos for California are Dell Computer
As for Dell, the state says that while the company doesn't have any physical stores in California, it does provide services for its products in the state. Therefore, it should be collecting sales tax whenever a Californian buys a computer from Dell via the Internet, phone, or fax.
The legislation is only expected to produce $13.8 million for the state and $6.2 million for local governments next year. That's hardly a dent in the whopping $35 billion deficit. Senate Republicans fear the unintended consequences of the move, but aren't likely to be heard through the state's roaring deficit.
Interestingly, a pure Internet-only company like Amazon.com
Lots of states are insanely cash-strapped, and are struggling to cut government expenditures any further. Given this, expect more of them to follow California's path to online taxation. It's much easier to do and much less controversial now than it was back in 2000. And it's certainly easier than slashing pork or pet projects.
Discussion Board of the Day: Living Below Your Means
What kind of shopper are you? Do you like to window shop and compare prices or do you charge first and ask questions later? Is it time for you to spend less than you make? All this and more -- in the Living Below Your Means discussion board. Only on Fool.com.
Mother Knows Best
Our first lessons about money (not to mention hygiene) were taught at home. What better time to celebrate those cherished life lessons than this weekend? (After you call your mother, of course.)
The folks at Money Management International revisited their childhoods by calling their mothers and therapists to dredge up the following bits of time-honored wisdom. We've added a few Foolish ways to heed Mom's advice while still maintaining that rebel reputation you've carefully crafted over the years.
"Money doesn't grow on trees." And it can't be counterfeited easily, either. A dollar spends the same, no matter if it goes towards Botox or the baby's college education fund. Treat it with care, and don't take any five-dollar bill for granted. Job loss, transmission issues, and teenage dentistry can blow bills out of your wallet faster than an F4 tornado. Tending to an emergency stash of cash can give you and your family shade from life's unexpected storms.
"Do as I say, not as I do." Declaring the house a "disco-free zone" and treating Crisco as a major food group are not habits to emulate. Nor is living on credit and ignoring your future financial needs. Even if you weren't taught good financial habits growing up, it's never too late to pass on what you've learned to your kids -- email them a link to the Fool Teen area to get them started.
"Do I look like I am made of money?" Not in that muumuu! Mom cut corners to make ends meet, and so should you. There's a big difference between needs and wants (EZ Bake Oven, anyone?). Examine every expenditure in your budget and prioritize. We wrote a grown-up workbook that can help.
"You don't always get what you want." Despite the fact that Madame MasterCard is cool with your frequent cash advances, Mom probably wouldn't be. Even grown-ups have to make choices. When you look at what it costs to borrow money versus taking time to amass the funds and pay in cash, you'll feel very grown up when you make the right choice.
"Don't leave any crumbs on the counter!" Has your wallet sprung a leak? Small amounts of dollars can add up to big bucks, as we outline here. Clean up the big financial messes first, and then pay attention to the smaller cash spills in your daily routine. There's nothing like coming home to a clean sink with a lot more spare change in your pocket.
Common sense and caring are the cornerstones of motherly advice. Now go wash your hands -- with soap! -- and get to work on your finances.
Make Mom Wealthy
Wouldn't you like Mom to learn how and when to diversify her stock portfolio so she can retire in style? Enroll her in our new online seminar, Perfect Your Portfolio: Asset Allocation for Long-Term Wealth, and get 20% off the price until May 16! It's the gift that keeps on giving -- Mother's Day or not.
The U.S. House of Representatives approved a $550 billion tax cut bill Friday afternoon. It falls short of Bush's suggested tax cut by $200 billion, but is higher than the Senate's proposal. The new bill would help investors by lowering the long-term capital gains tax rate from a current 20% to 15% and slashing the dividend tax rate to 15% from the current "same as income rate" bracket. Critics say it will push the nation's debt to $12 trillion within 10 years.
Massachusetts needs $3 billion to fill its budget deficit. One state lawmaker, Republican Rep. Bradley Jones, Jr., has come up with an interesting solution, and one that is already causing tempers to flare. His proposed measure would allow for corporate sponsorship and naming rights for Massachusetts' state parks and forests. That includes Walden Woods, made famous by writer and conservationist Henry David Thoreau. Jim Gomes, head of the Environmental League of Massachusetts, responded by saying, "What's next, big plastic Coke bottles on top of the Statehouse? It's really a bad joke."
A judge gave plaintiffs in the $10.1 billion case against Altria's
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Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Charlie Munger on Berkshire Hathaway, how to get rich, and more.
- On Markets and Marathons: Rex Moore looks at what running can teach us about investing.
- Dueling Fools: Wal-Mart vs. Target
- A Stock for Mom: Right Management, a company that makes money when the economy tanks.
- TMF Interview: Burton Malkiel's thoughts on real estate and blindfolded monkeys.
- In Fool's School, contradictory advice about investing. What to believe?
- Make the proper tax adjustments and keep more of your money, in our Tax Center
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Reggie Santiago, Dayana Yochim