US MARKETS & TRENDS: Currencies and their buying power

The euro was so deflated in 1998 and 1999 that 100 euros would buy you just 87 U.S. dollars. Today, 100 euros gets you 142 dollars. A serious, behind-the-scenes trade war has developed since that time over the price of many items. For example, at the end of the 20th century Europeans were paying 3.45 dollars for a bushel of U.S wheat, whereas now the cost is a mere 2.11 dollars. In another example, a Boeing plane worth 100 million dollars in the late 1990s was valued at 115 million euros. Today, that plane could be purchased for 70 million euros.
With inflation on both sides of the Atlantic more or less equal, it is not surprising that Europeans with protectionist leanings have demanded some relief from the lower prices of U.S. goods.
Figures show that the Europeans have been gradually decreasing their local purchases while slightly increasing their U.S. purchases. This shift takes place, for example, when a bread company buys a load of wheat from the United States for the first time or when a family buys a Motorola cell phone for the first time instead of a European model.
Meanwhile, U.S. consumers and businesses may have unknowingly shifted some of their buying to domestic goods. The long-term trade shift starts to develop, for example, when a well-off family decides to buy a Cadillac instead of a BMW or a U.S. grocery chain discontinues a line of European chocolates in favor of a local brand.
There is always a fierce debate about whether we should keep our money in dollars, yen, yuan or euros. The answer is that it doesn't make a lot of difference if we are in one of the major currencies. Most goods today are priced competitively on world markets. Local goods will be cheap if the local currency is depressed but, conversely, they will be expensive if the local currency is inflated. In time, the currencies will reverse. There is usually more danger in trying to second-guess the direction of currencies than there is in sitting still in one of the major currencies.
From an investment perspective, global diversification is a judicial practice. Good companies everywhere will find a way to be competitive, even if it means buying parts or supplies in other countries. Good businesses know that dealing in another currency will not become their undoing.
Likewise, consumers should not be distressed over having a pocket full of euros, yen, dollars, Canadian dollars or Swiss francs.
Dean McGowan, Sr. V P, Investments UBS Financial Services, 5080 Spectrum Dr., Ste 1000W, Addison, Texas 75001; 972-450-4322; toll-free from Mexico 001-800-010-1323; from the U.S. & Canada 800-288-1515. McGowan will be in Guadalajara at the Holiday Inn Select Thursday, October 18 and Friday, October 19, 33-647-7778; and in Ajijic at La Nueva Posada Saturday, October 20 through Thursday, October 25, 376-766-1444. To make an appointment, call his office. McGowan will hold an investment workshop on Tuesday, October 22, 10 a.m. at La Nueva Posada. The public is invited.