5/1     Assuming a depreciating dollar, does that really mean foreign stocks
        would be more attractive? After all, the inherent value of any given
        company should be independent of the denomination -- if the dollar is
        worth less, the company is worth more dollars. And revenue goes up
        as prices go up. It would depend on whether there is something about
        a stronger dollar that the individual company depends on.
        \_ Value of foreign stocks and value of the dollar are not entirely
           orthogonal.  Any company that exports to the US would suffer
           from a stronger dollar.  Still, I would expect, and have observed,
                  ^ by "stronger" i meant "weaker".
           a general trend that investing in foreign stocks during a time
           of a declining dollar has limited the damage from the recent
           wall street bloodbath on my overall portfolio.
           \_ What bloodbath? The drops that happened earlier were not
              related to value of the dollar, but fears about the US and/or
              world economy, which is somewhat orthogonal to exchange rates.
        \_ If the US economy craters, overseas companies will take less of a
           hit than US companies, but they'll still take a hit.  Companies
           which rely heavily on US consumerism will be hit hardest, of the
           overseas companies.   -tom
           hit than US companies, but they'll still take a hit.  Of the
           overseas companies, those which rely heavily on US consumerism
           will be hit hardest.  -tom
           \_ I'm more asking about the inflation/exchange rate issue, not
              cratering of the US market itself. I saw a couple people imply
              that a falling dollar implies foreign stocks, which sounded
              like the way someone would advise moving into foreign currency
              instruments, but I think that's fallacious for stocks.
              \_ It depends on the company.  Owning stock in foreign
                 companies is a hedge against the weak dollar; my foreign
                 holdings have done very well since the dollar has tanked.
                 But there are also foreign companies which will have
                 business problems due to a weak dollar.  -tom
        \_ It is a good hedge against the dollar falling, similar to the
           hedge you get from foreign currency. Foreign stocks are demoninated
           in their home currency, I hope that is obvious. You also get the
           added effect of any stock market: more volatility combined with
           more potential for gain.
           \_ But my point is that stocks != holding currency. Currency will
              just go down because it has no other value than itself. But
              say, GE as a company has some real world value in terms of
              physical and intellectual property, and its products have a
              value independent of the currency (so if dollars were worth
              2x less, that refrigerator will cost 2x more dollars, basically.)
              Well, I guess it depends if the dollar is worth less due to
              inflation or due to exchange rates... so US companies which
              sell stuff overseas seem safe enough.)
                  \_ You realize that NOTHING has a fixed "intrinsic" value?
                     Things are "worth" what you can trade for it.  If people
                     woke up one morning and decided they didn't want gold
                     anymore, it would lose nearly all it's "value".
                     That is perhaps not too likely to happen to gold, but
                     it happens to companies *all the time*.  All markets
                     and currencies are pretty much imaginary constructs.
                     And imaginations sometimes run away.
                     \_ Nothing you said here appears to conflict with what
                        I said.
              \_ It's a multivariate, chaotic system; you can't isolate one
                 variable like that.  There are fundamental problems in the
                 US economy which are leading to the dollar's fall; those
                 problems affect US companies more than they do foreign
                 companies.  -tom
              \_ The simple answer is: no that is not how it works. A company
                 that only sells products in the US, with no overseas
                 competition, is not going to be able to raise their price.
                 The dollar is worth about 1/2 what it was in 2001, but
                 prices are not double, except for the price of oil, which is
                 a fungable commodity. Most goods are only up 25% or so.
                 a fungible commodity. Most goods are only up 25% or so.
                 A bunch of stuff (mostly made in China) has actually
                 gone down in price.
                 \_ But the US company's revenue will not show a 50% drop, it
                    is denominated in dollars. The US stock might rise if it
                    becomes more attractive for foreign investors.
                    If costs go up (oil, inflation-hit production inputs) then
                    they can raise their price, because they have to and so
                    does everyone else. Foreign companies can't come in and
                    undercut the US company if the exchange rate cheapens the
                    dollar and oil prices are high globally. So I still don't
                    see why falling dollar and/or inflation is, in and of
                    itself, bad for US stocks. Economic slowness due to
                    related factors might be a reason.
                    \_ There's no such thing as a falling dollar "in and of
                       itself."
                       \_ Okay. But the associated factors are not clearly
                          bad for the US stocks either. For example:
                          low interest rates tends to devalue a currency, but
                          low interest rates tend to make stocks more
                          attractive.
                     \_ Okay, I agree with your reasoning. But you can see
                        how stocks in a foreign market would tend to outperform
                        ones denominated in a local depreciating currency,
                        right?
                        \_ Yeah, obviously if nothing else changed then you
                           are gaining the exchange rate on top of the stock
                           growth. I guess there are too many variables as
                           tom implied. I should look at how NASDAQ or the
                           DOW performed relative to various international
                           indices on a dollar-basis over the last 5 years.
                           But there have been many many variables besides
                           exchange rate.