Who Benefits from a Falling Dollar?

The recent stimulus programs (i.e., the printing of money) by the FED and the US government stimulus programs have increased the total amount of money in circulation. Since there is more money to spend on the same amount of goods and services as before, everything costs more. This causes our money (US dollar) to be worth less (devaluation) leading to the recent decline in the US Dollar. When the US Dollar declines the price of goods and services denominated in US dollars tends to increase in value. Consequently, imports become more expensive on a relative basis as the result of a decline in the dollar. Exports tend to rise because U.S products and services would be cheaper to buy overseas. Also, since commodities are inversely correlated to the dollar, commodities and any hard assets will likely rise as the dollar weakens.

In a nutshell, a weaker dollar means our currency buys less of a foreign country’s goods and services. This tends to result in prices of imported goods and services rising. Which in turn results in US consumers paying more for imports because it is more expensive.

So, what should an investor do when the US dollar falls?

(1) All things being equal, if the currencies of the foreign markets that you are invested in are strengthening while the dollar falls, then these foreign investments will be worth more when converted back into dollars. By investing in international stocks and bonds this can help protect your US-denominated assets from a declining dollar.

(2) US multinational companies with significant overseas sales can stand to benefit from a falling dollar.

(3) Commodities and commodity-related stocks tend to outperform when the dollar falls.

(4) Treasury Inflated-Protection Securities (TIPS) provide protection against inflation. The principal of a TIPS increases with inflation and can be a bet against fluctuations in US Treasuries.

(5) Real Estate is a tangible investment that has an intrinsic value and this type of real asset tends to perform well when the dollar is under pressure.

Attached are some of the assets and securities that can benefit from the continued decline in the US dollar.