Brian Richards and I wrote back in March that we
thoughtthe
dollar might be doomed. That was because:
1. The United States has a massive and growing deficit.
2. The United States continues to generate significant
trade deficits.
3. The United States has become oh-so-willing to print
money out of thin air to meet its increasing obligations.
The more things change ...
Fast-forward five months, and that willingness to print
and spend has only increased. None other than Warren Buffett
put the nail in the dollar's coffin in a
New York Timeseditorial last month.
He wrote, "Fiscally, we are in uncharted territory" and
concluded that "Unchecked greenback emissions will certainly
cause the purchasing power of currency to melt. The dollar's
destiny lies with Congress."
Lies
with Congress? If you know anything about Congress
-- I used to work in the political game -- then you know for
sure now that the dollar is doomed.
Deep breaths
This should be worrisome news if you earn a
dollar-based salary, keep a dollar-based bank account, or
invest in dollar-denominated U.S. stocks and bonds. Why?
Because as the dollar declines in value, so will all of your
earnings, savings, and investments. And that's scary
stuff.
The good news for you is that the dollar's decline in
value over time won't happen in a vacuum. In order for the
dollar to decline, other world currencies must rise in value
against it. That means there are a few ways you can protect
yourself -- and even profit -- from the dollar's decline.
First, consider companies such as
ExxonMobil (NYSE: XOM) or
BP (NYSE: BP) that have significant natural
resource reserves that should maintain their value. Second,
consider a company with significant exports like
Boeing (NYSE: BA) that benefits from a weaker
dollar because that makes its pricing more competitive
globally. Third, buy stocks that do business in other
currencies, such as
Intel (Nasdaq: INTC) and
Nokia (NYSE: NOK), and specifically in
currencies that you suspect will rise against the dollar over
time.
Some currency candidates
Our
Motley Fool Global Gains
international stock research team believes that the
currencies that stand to benefit most are those that are
tender in countries that 1) are big and stable enough to
offer a credible alternative to the U.S. for countries that
are looking to stash their trade surpluses, 2) have
significant natural-resource assets that will become more and
more in demand over time, or 3) both.
Thus, candidates include the euro (simply because of its
scope, even though Europe has its own structural economic
problems), the Brazilian real, the Indonesian rupiah, the
Chinese yuan (should it become freely convertible), the
Chilean peso, and the Peruvian new sol.
What we don't know, however, is how this all will all play
out. So rather than bet on just one of these currencies, we
recommend that you buy a basket of stocks that will get you
exposure to all of them. Thus, even if political instability
triggers a decline in the rupiah or the new sol, you have
sanctuary in diversification.
With that last point in mind, I'm going to give you the
name of my No. 1 dollar protection stock -- one that I
consider a "buy" in our
Global Gainsservice. But before I do that, know that
this stock is not the silver bullet. Indeed, to properly
protect yourself and position yourself to profit, you need a
globally oriented portfolio of stocks that will give you
exposure to a variety of currencies and markets.
But this stock is a great place to get started ...
My No. 1 dollar protection stock
Philip Morris International was spun off from
Altria in early 2008 to hold all of Altria's
foreign cigarette businesses. This includes those in Canada,
Latin America, Europe, and even a joint venture with China
National Tobacco. Continued... |