US Dollar and Investing

This is the last in the series on the US Dollar and it covers the topic of how to invest to make money as the US Dollar changes. One of the easiest way to invest is in US companies that produce commodities. Commodities are invested using exchanges throughout the world and the price tends to move in unison to prevent arbitrage. Arbitrage is where a commodity is bought on one exchange and sold on another exchange due to exchange differences. As commodity prices change on an exchange the profit made by a US company changes.

In general, as the value of the US Dollar drops global commodity prices rise, including in the US. Vice versa, as the value of the US Dollar rises global commodity prices drop, including in the US. A point to remember is that commodity prices on occasion move by speculation such as the change in oil last year from $140 to $40 per barrel. An example is the oil trader that supposedly earned a $100 million bonus by trading oil futures last year.

The value of the US Dollar has no impact from a currency valuation perspective on a US manufacturer. As US Dollar prices drop and commodity prices increase the US producers have a lot of leverage to make a profit. In an investing class, I found out that a 15% drop in revenue can easily drop profit 40% or a 2.5 times leverage. Likewise, this same 2.5 times leverage exists as revenues increase.

If you want to pursue this idea, you need to invest in US companies. Two of the best companies to use are Exxon Mobil for Oil and Freeport McMoran for Copper. This is for traders not for long term investors.

Have a great week and count your blessings. This is the Pastor Appreciation Month so make sure you tell your Pastor how important they are to you. Let me know how I can help you.