So you’re invested in dollars? You heard on TV or someone told you that the dollar is losing value. Is this true? Yes. The reason is simple. The US trade deficit for the last 12 months is 800 Billion, thats the annual GDP of countriles like Brazil or India. You want to know how to invest to protect against the dollar’s decline? If you want to protect yourself against the dollars decline the simple answer is to invest internationally. There are lots of ways to invest internationally and I will look at each of them.

Currencies: When the US dollar goes down, it reduces in value compared to other currencies. So an easy way to protect against the decline is to invest in foreign currencies. This is an option i do not like because investing and trading foreign currencies is extremely risky. The other reason is buying currencies is a short term hedge, once the dollar declines the trade is over. You get one time returns on the actual decline but that’s all. Investing in companies is a better way to go as i’ll explain later.

A series of new Trusts have started trading on the NYSE that allow people to own various currencies. I dislike investing in currencies and would never recommend them. They are extremely risky. I just included them for completness.


Two mutual fund families have started new funds that protect against the falling dollar. These are professionally managed but still risky especially high risk is the Direxion Dollar Bear which seeks daily invstment returns of 2.5x the inverse of the dollar.

Why Companies over currency?
A declining dollar helps US/Foreign companies that have a lot of international sales. This is because they earn the same amount in international currencies but when its converted into US dollars they earn a lot in dollar terms. Lets take Coca-Cola in a hypothetical example.

Year EPS Estimate US International Stock Price Adjusted EPS Adj. Stock Price Increase
2006 $2.31 $0.69 $1.62 $46.20 $1.94    
2007 $2.51 $0.75 $1.76 $50.20 $2.11 $57.23 14.00%


If the company recieves the same 20 P/E in 2007 as it did in 2006 the stock should rise to $50.20. If the US$ drops by 20% the international profits would be reported as $2.11 instead of $1.76 and the company would be valued at $57.23 thats a 14% increase because of the drop in the US$. Every subsequent year that the dollar remains at the lower level the company would report higher EPS by 14% so you benefit every year that you hold the stock over a 1 time benefit in owning a foreign currency.

US Multinational Companies: The best bet is to look for large multinational companies which do business in all major international markets. When the dollar declines these companies will recieve major increases in EPS.

International Stocks: International Multinationals have the same earnings increase benefit as US multinationals and an added benefit for international stocks is their assets may also get higher value.

Commodities: The last way to play the decline in the dollar is to bet on commodities. Since commodity prices are set in US$ terms they rise in relative value when the dollar declines. All commodities traded in dollars should increase in value if the dollar declines. Companies in the energy, metals and mining industry should perform well.

Mutual Funds : For anyone that would prefer an International mutual fund (Which is the safest way to play the dollar decline). I list my favourite International Funds.

Note: I would stay away from international stocks that get most of their earnings in US dollars. If you find an international stock that gets most of its earnings from the US market. Since the company is paid in USD When the dollar declines the revenue of that company will drop while their costs will remain the same.

Conflicts : I own shares of Chesapeake Energy