As the dollar climbs, U.S. investors can buy more foreign securities, but that also puts pressure on domestic companies that produce superior earnings in dollar terms. And foreign investors in American securities have the wind at their backs as the robust buck gives them currency translation gains on top of dollar-denominated investment results. Take 10-year sovereign yields, where Treasury notes provide higher yields than their counterparts in 15 other developed countries. The 3.04% U.S. yield is 2.81 percentage points better than Japan’s 0.23%, 2.14 points above Switzerland’s 0.90% and 2 points higher than Germany’s 1.04%.
The strong dollar isn’t universally helpful to American consumers and investors. Still, in addition to being a haven in a sea of global turmoil, it does tell investors worldwide that the U.S. is the best place to be.
Gary Shilling is president of A. Gary Shilling & Co., a consultancy. He is author, most recently, of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, and he may have a stake in the areas he writes about.