Buying US Shares, worried about a falling dollar

38141

I'm thinking of buying a US stock but am worried about a future decline in the dollar/euro exchange rate. Is there any way I can cancel this risk cheaply? I think the term is a dollar hedge.

Coney Island

Maybe buy gold too....usually when the $ goes down, gold goes up... that's what I read on the last book I read.

38141

I've thought about that, but gold is at a 25 year high at the moment and that's keeping me away from gold.

I'm basically trying to play the falling dollar here.

Coney Island

38141 wrote:

I've thought about that, but gold is at a 25 year high at the moment and that's keeping me away from gold.

I'm basically trying to play the falling dollar here.

The fact that gold is 25 years high does not necessarily mean that is going to fall...

Hitchhiker's Guide to...

this is very difficult tbh. There ARE currency options / hedging services available to protect you financially from a fall in the dollar (e.g. through a spreadbetting/CFD firm). But, if you are holding your US investment long-term, the option to protect against a fall in dollar would work out unreasonably expensive from what i hear.

Maybe you could engage in what is known as a 'natural hedge'. Whereby the share you select to buy is itself naturally hedged against a fall in dollar against the euro. For example, by buying US stocks with strong exports compared to domestic US sales. These firms will benefit from a fall in the dollar, and that will partially compensate you against the negative affect to you from a fall in the dollar...

what do you think?

p.s. changed the title of your thread to make what you are asking a bit more obvious...

38141

Whether a lower dollar is reflected by a higher share price due to higher earnings from non-dollar regions would depend on the market. However, a fall in the dollar would automatically lead to a fall in its euro equivalent, which is what would matter to me.

Put differently, the higher euro's resultant higher dollar earnings would not necessarily result in a higher dollar share price; it would depend on how the market viewed it. But a fall in the dollar would automatically lead to a fall in the euro value of the share, in the sense that the exchange rate is different. So basically I would be taking a chance that the market reflected the lower dollar - higher earnings into the share price and this cancelled out the lower exchange rate effect.

It looks here like my options are pretty limited tbh. I was hoping there would be something I could do because there are some very attractively-priced stocks in New york at the moment which I would like to put some money into. I don't know a lot about options but was thinking there may be a solution here - any ideas? If I were to purchase an open-ended option to buy dollars at the best rate available.

antoinolachtnai

If you feel the dollar is going to fall, you can sell dollars now to hedge. (Yes, I know, you don't have the dollars to sell, but you can borrow them if you want.) Then buy back the dollars later when you sell your shares. Note, going short is not something you should do unless you really understand what you are doing.

Alternatively and maybe more simply, you might be able to buy a euro-denominated CFD or spread-bet on your chosen company.

ixus

How long do you intend holding onto the stock?
If it's long term (3+ years) there's every possibility the dollar will strengthen in time.

dochasach

I've no doubt the dollar will shrink, but unless the E.U. gets its finances in order, over the long term the Euro will also drop. It's anybody's guess which will fall faster against the Yuan and minerals. You could hedge by buying stock in mineral/mining and oil companies.

silverharp

Gold would be a good hedge, in 2000 the gold dow ratio was 40/1 now it is below 20/1 if history is a guide the ratio will end up at 2/1 or even 1/1 this could mean that the dow 1000 and gold is $1000 or the Dow could go to 40000 but gold would be somewhere between 20-40K

Hitchhiker's Guide to...

silverharp wrote:

Gold would be a good hedge, in 2000 the gold dow ratio was 40/1 now it is below 20/1 if history is a guide the ratio will end up at 2/1 or even 1/1 this could mean that the dow 1000 and gold is $1000 or the Dow could go to 40000 but gold would be somewhere between 20-40K

any support for this statement? its quite a dramatic prediction!

silverharp

try the link below for starters by a money manager called Dr Marc Faber, if you remember back in 1980 gold was at 850$ and the Dow was under a 1000. I picked the article quickly but there is a graph


http://www.financialsense.com/editorials/faber/2005/1212.html

ixus

Was watching Marc Faber on Bloomberg at 2pm.

He reckoned commodities were going to fall back 20 - 30% in the near future. He wasn't specific on which commodities.

He was saying his personal investments were something like 35% cash and up to 50% linked to Asian property.

I'm not a 100% with the specifics of what he said, but that was the jist of it.

He was very interesting, but the Bloomberg interviewer was a dipso. Didn't even listen to what he was saying, was just streaming off questions.

eatsloads

Roundtower2 wrote:

any support for this statement? its quite a dramatic prediction!

Very interesting????? Any idea how to buy gold on an exchange?

silverharp

There is a large spec element to commodities at the moment and I think Faber is right, his basic point is that everything is going up at the moment, it is unusual for Gold and the stock market to be powering ahead at the same time, he thinks there is going to be a pullback soon, personally I’m waiting until the Autumn to see how the tree shakes out, I think the Fed will be forced to raise rates until the commodities turn down, they would lose credibility otherwise.

There are gold ETF’s but havn’t gone down that route yet (check out the thread in the biz section about the Irish Economy in trouble, I’m sure someone mentioned there about ETF’s), most gold investors would advise having a base physical holding (eg Perth mint Certificate and gold shares) and then maybe trading 1/3 via ETF’s also

If you like Fabers articles there will be an archive on www.gold-eagle.com