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A Stronger Dollar and Your Portfolio

By
Services for Real Estate Pros with eRealEstate Social Media Group

Since peaking more than six years ago versus the world’s major currencies, the U.S. dollar has posted some dizzying declines. Only a few currencies in the world have actually declined vis-à-vis the sad buck since late 2001 – including the Zimbabwe dollar. That’s hardly a feet to be proud of considering hyperinflation has gripped the economically ravaged African nation over the last 12 months accompanied by 1,000% inflation.

There’s no doubt that since Nixon broke the gold standard in August 1971 the dollar has plummeted versus the world’s hardest currencies, including gold. Bulging trade and budget deficits, protracted military conflicts, bloated entitlement program spending and lingering financial institution bail-outs amid the ongoing credit crisis bode badly for the dollar longer term.

Indeed, you might say it’s the “beginning of the end” of American financial hegemony as long-term inflation erodes the dollars’ purchasing power and buys less which each passing decade. After all, to finance its enormous expenditures the United States, which is a reserve currency, prints its way out of financial turmoil by expanding the money-supply and growing inflation. The latest financial debacle since August 2007 promises to pile on even more debt, including toxic securities on the Federal Reserve’s balance sheet.

As the years progress, the United States will become even more dependent on foreign governments and institutions to finance its daily consumption, currently running at roughly $2 billion per day, courtesy of international lenders.

But bear markets are interrupted and investors should recognize short-term investment opportunities as a result. That’s exactly what’s happening now with the dollar.

Busted Properties

Real estate also offers excellent values, particularly from rising foreclosures and bank repossessions. This is exactly what occurred in the 1989-1991 Savings & Loans crisis; several years later, vulture investors earned big profits from buying cheap properties.

In the most devastated real estate markets of Nevada, Arizona, California and Florida, investors can find an abundance of residential and even a growing universe of commercial properties gone bust. To be sure, financing has grown more difficult for even the most creditworthy of borrowers as banks balk at lending. Yet, many deals will be closed over the next few years as banks grow increasingly desperate to unload a truckload of properties at fire-sale prices.

Real estate in the United States is also extremely cheap when priced in euros, yen or most other currencies. In 2007, more than 20% of all residential property purchased in Manhattan was by Europeans. I expect that trend to accelerate in 2008, especially if the euro continues to soften.

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