Hey Buddy! Gotta Buck?

Hey Buddy! Gotta Buck?
On a Wednesday afternoon , a leased commercial jet landed at Bangkok International airport. Two hours later, a Thai bus driver for the Airports Authority of Thailand maneuvered narrow alleyways to Thailand's version of the Red Roof Inn. When getting off the bus, the first words I heard were, "Hey Air Force man; gotta buck?" Today kids are asking, "Hey buddy, gotta Euro?"Currently, the Japanese have no yen for the Dollar; the British may be metric, but they prefer pounds, and kids in Belgium, Germany, Spain, France, Ireland, and Italy have a new toy called the Euro. Whatever happened to the U.S. Dollar? What does it mean to your investments? What does it mean to our economy, the way we live?The Dollar's performance against its peers on the world market is the worst in three years. The dollar lost 10% of its value as of December 13th 2006.Any nation's currency gets strengthened when interest rates go up. Europeans expect the Euro to go up as the European Central Bank (ECB) increases interest rates. When the Federal Reserve moves adjusts interest rates up, dollar investors like it, but moving rates up could set off a recession. Will the dollar strengthen with a strong economy (low interest rates) or will the dollar weaken during a recession and high interest rates?Here's what the experts say:Steve Saywell, chief currency strategist at Citgroup looks for dollar value improvement during 2007.Tim Mazanec, senior currency strategist at Investors Bank & Trust Co. is the most accurate predictor of dollar values for 2006. Now, he thinks that the improvement in the housing market might mean a no-action policy by the Federal Reserve (no moves up or down for interest rates).Monica Fann, head of currency strategyu at RBC Capital Markets turns over the apple cart; she says, "The dollar will weaken substantially." She expects the Euro dollar to retest its previous highs because the ECB will continue tightening rates.Steve Saywell adds more to this debate when he asserts that "Any turn around (in the dollar)...is going to be driven by a stronger output from the U.S. economy." Citigroup thinks "this is the darkest hour for the Dollar."*Dollar values are driven by economic growth or slowdown*Dollar values adjust to the Federal Reserve's interest rate decisions*Dollar values are effected by the housing market.*Dollar values are effected by confidence in the U.S. economy by foreign investors.*Dollar values are effected by the trade deficit (at $$225.6 billion in the July-September quarter reported December 18, 2006 ) and the budget deficit (see "The Outstanding Public Debt" below).With the stock market making new highs, housing showing signs of recovery, while you and I spend our money, does the dollar mean anything to the U.S. investor?"A dollar saved is a quarter earned."Oscar Levant (1906 - 1972)If trade and budget deficits continue, the Euro is going to keep stepping on the dollar's toes. Budget and trade deficits are bad enough; the cost of war makes it worse.Trade deficits are burden the U.S. economy. In 1999, Dr. Robert E. Scott explained the issue to the Economic Policy Institute.He said, "Since the 1970s the U.S. moved from a trade surplus to a deficit position, as Europe and Japan began to compete effectively with the U.S. in a range of industries. There are many ways in which trade has injured U.S. workers since then.Democrats and Republicans may attempt insulating the U.S. worker from globalization. They can't, but that never stopped politicians from trying at our expense.Dr. Scott explains that "...deterioration in the trade balance ... has reduced employment, especially in manufacturing and other industries producing traded goods." Industrial jobs are lost."Cheap labor makes foreign goods inexpensive to Americans, but at a cost to us and the foreign worker. Scott says, "...we must develop new incentives to interest developing countries in joining the developed world in raising labor and environmental standards." Long sentence that means pay your workers better and make sure they are safe when working.Finally, "Developing countries also need an alternative to the model of export-led growth...." Harry Paulson, U.S. Treasurer encourage the Chinese (we don't tell them what to do; we encourage them) to shift their economy to domestic consumption. We want a TV in every Chinese livingroom and a car in every garage.How come this matters to U.S. (us)? Robert Scott explains that "...too many countries are competing for access to the only open market in the world, and the U.S. can no longer afford to be the market of last resort." We can only buy so much "stuff".Of course it is all a balancing act. If a country exports, they create jobs; if a country imports, they eliminate jobs (and we have done just that because buying from overseas is cheaper, but at a cost).Here's the rub: If the United States continues trade and budget deficits, we are in trouble. Someone has to pay; if International investors buying our debt call the loan, someone has to pay it. When international investors loose confidence, U.S. taxpayers have to ante-up, and as of today the bill is $28,677.00 for every American.The effect on economic stability seems obvious, and the subsequent impact on securities markets equally clear. We all suffer.U.S. stock market investors will remain committed to domestic companies, and domestic corporations will remain committed to increasing their profits home and abroad. However, U.S. investors must recognize that the dollar can purchase opportunity in developing nations. Foreign currency risk may be reduced as foreign economies improve. U.S. Treasuries, a safe-haven, may not always be the most secure investment.Global economic expansion causes hardships and opportunity. Investors acknowledge change when they seek broad diversification among multiple asset classes. Doing so is a necessary hedge against the unpredictable effects of a constantly changing global economy where the dollar was once the king of all currencies. Ultimately, we may ask ourselves if the United States will remain the leading global economy.