Is this a good time? Featured

8:00pm EDT June 25, 2008

As the U.S. economy continues to sputter and the dollar weakens, some domestic investors continue to look for and find ways to make sound investments. And where Americans once enjoyed a favorable rate of exchange when traveling to countries, such as Canada, those benefits are now being reaped by citizens in other countries.

“The weaker dollar has affected U.S. companies by either international investments or international travel by consumers,” says Cody Wagoner, a business banking relationship manager at Wells Fargo Bank. “Just our purchasing power has decreased through the depreciation of the dollar.”

Smart Business asked Wagoner what U.S. investors are doing to stay competitive until the dollar regains its strength.

With the weakened dollar is this still a good time to be a U.S. investor?

Looking at the U.S. dollar to the euro, American vendors can’t raise their prices fast enough to match the rate of depreciation. From Jan. 1, 2001, to Jan. 1, 2005, the dollar lost 52 percent of its value against the euro. Back in 2001, for 85 cents you could buy one euro. Today, it will cost you between $1.50 and $1.60. That is a major change.

Has the dollar ever been this low before?

In my nine years in the banking industry, the dollar hasn’t been valued this low versus foreign currency such as the euro. Just over the last four years, it has changed significantly. In May 2004, one euro cost $1.19 and today (accurate as of June 6, 2008) it is $1.56. In that same time frame, it has been as high as $1.60 and as low as $1.16. And it’s not just against the euro. The dollar has depreciated against just about every foreign currency.

Has this affected the way U.S. investors invest globally?

There are always good returns, we just have to put in more initial capital. We need to invest more to get that same dollar return since our purchasing power has depreciated. Americans used to go to Canada for vacations because goods and services were cheaper there than they were here. One dollar used to get you $1.60 in Canadian currency. Not anymore.

Has the weakened dollar hurt U.S. investors?

It depends. It has helped those who previously had foreign investments or had purchased foreign currency and held on to it, waiting for the returns to go up. Go back to the scenario of $1.19 for one euro four years ago rising to $1.56 today; that is a 32 percent return over four years. So if investors had already invested internationally, it helped them.

Likewise, in the same way that it helps exporters, the current currency environment creates challenges for companies that import materials. This is especially true for firms that import finished consumer products.

Are foreign countries taking advantage of the weakened dollar?

Absolutely. If you were to pull up U.S. export numbers you would see they are increasing. If I’m in Germany and I can get a 50 to 75 percent discount if I buy from the United States, that’s what I’m going to do.

On the flip side, foreign investors are buying American companies and real estate at a tremendous discount. A specialist told me Canadians are flocking to Florida and buying up properties left and right because they are getting them so cheap. What costs $250,000 to us is $125,000 to them.

Foreign investors are acquiring American investments at a discount, and when the dollar rebounds they will sell and make a sizeable return. Foreign investors can reap benefits coming and going.

Why has the weakened dollar caused the price of oil to rise?

All global commodities are priced in U.S. dollars. So with the weakening dollar and less purchasing power it drives prices up. If there’s a long-term history of the dollar being down then that might change. I think some members of OPEC have complained about it recently; I’m sure if we stay in the tank long enough then prices may eventually be based on the euro or some other globally recognized currency. However, everyone wants the market to be somewhat stabilized, and they don’t want to make major swings on an annual basis.

CODY WAGONER is a business banking relationship manager at Wells Fargo Bank. Reach him at cody.wagoner@wellsfargo.com or (713) 383-1607.