By Zach Scheidt
This post The Dollar Is Crashing: These FOUR Execs Are Laughing… appeared first on Daily Reckoning.
Take a look at the list below…
David Taylor, CEO of Procter & Gamble
Jeff Immelt, CEO of General Electric
André Calantzopoulos, co-CEO of Philip Morris
Louis C. Camilleri, co-CEO of Philip Morris
What do all four of these multi-millionaire executives have in common?
They’re all smiling as the U.S. Dollar breaks down.
You see, ever since topping in December, the value of the U.S. Dollar has been trading lower. And as this trend picks up momentum, it will send shock waves throughout the global economy.
So why are these four execs celebrating? Let’s talk about what’s happening with the greenback…
The Dollar is moving lower as it becomes clear that the Fed is less likely to aggressively hike rates this year. In Fed announcements and minutes, Janet Yellen has made it clear that the Fed will be very cautious going forward.
Yellen is worried that raising interest rates “too soon” will hurt the modest growth in the U.S. economy. And with so much uncertainty in the market this year, I wouldn’t even be surprised to see the Fed resort to lowering rates in the not-too distant future.
As the market comes to terms with a more cautious Fed, the Dollar is sinking.
The reason is simple. For years the market has been waiting for higher interest rates. And higher interest rates strengthen the U.S. Dollar — after all you’d have to pay more to borrow it.
But the opposite is true with lower interest rates. With rates expected to stay lower for longer the outlook for the Dollar weakens.
You can see the start of the U.S. Dollar’s breakdown in the chart below.
The Dollar is heading downward… and that makes a certain subset of executives giddy.
It’s not because these executives relish the lower value of the dollars in their bank accounts. No, it’s because a weaker U.S. Dollar will boost profits for their respective companies. (And in turn, their executive compensation, their stock options, and their corporate empires will all increase in value.)
Here’s how it works…
Most investors don’t realize that a weak U.S. Dollar actually benefits American companies that do business overseas. But the truth is, a weak Dollar actually does wonders for companies who sell products or services to international customers.
There are two major reasons why a weak U.S. Dollar helps these companies…
First, a weak U.S. Dollar makes American companies more competitive. This is true for companies that sell products around the world, for service companies that have customers in other parts of the world, and for any U.S. business that generates revenue in non-U.S. currencies.
Think about a company that sells aircraft engines to an international customer base.
This company has expenses associated with each engine it produces. For simplicity sake, let’s say that it costs $1 million to produce an engine, and the company targets a $1.2 million selling price. This way the company can turn a profit on each engine it produces.
In December, one euro could be exchanged for $1.04 in …read more
Source:: Daily Reckoning feed
The post The Dollar Is Crashing: These FOUR Execs Are Laughing… appeared first on Junior Mining Analyst.