The Dollar

Right now the dollar is quite strong but it won’t stay this way. Is Berkshire a decent play if the dollar starts losing strength?

What other investments are good?

Some are obvious like shorting the dollar and futures. Reading various articles didn’t seem to lead to a lot of obvious investments. I saw some items such as:

  1. International stocks
  2. Emerging market stocks and debt
  3. Gold: Actually one said yes to gold but another article said no
  4. multinational companies (seems vague to me)
  5. Some kind of ETF containing a basket of international currencies

Anything more useful?

Thanks
Rich

Right now the dollar is quite strong but it won’t stay this way. Is Berkshire a decent play if the dollar starts losing strength?

Put this in the “too hard” bucket. Making money on currency swings requires a lot of leverage - and you need to get the timing just right.

tecmo

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Right now the dollar is quite strong but it won’t stay this way. Is Berkshire a decent play if the dollar starts losing strength?

As for Berkshire, it’s a very unusual company for its size in that revenues are overwhelmingly tied to the US dollar.
But then so are expenses, other than commodity inputs which nobody has control over.
So, Berkshire’s price would likely remain “normal” measured in US dollars, and be shrinking at the same rate as the dollar in real terms.

It’s easy to figure out place to put your money that will do well if the US dollar falls.
What’s hard is to figure out how to do that in a way that doesn’t lose money if the revere happens.

But, if you are convinced the US dollar will fall

  • Equities are still a better bet than fixed income or capital assets like gold
  • Ignore where a company is listed. Think about where it does business.

The ideal business would be one with most of its expenses in US dollars, and most (or a lot of) of its revenues in other currencies, and reporting in US dollars.
This works for two reasons: first, their margins automatically expand with a falling dollar.
And second, their headline earnings measured in US dollars soar, meaning they tend to become popular stocks with apparently rising earnings and truly expanding multiples.
(even if their earnings measured in purchasing power are not rising nearly as fast).
And of course, great pricing power and available at a reasonable price.
Coca-Cola is a good example, though it’s not available at a reasonable price.
The value-oriented big tech firms are probably pretty good bets, like Alphabet.
Most of their marginal costs are either denominated in US dollars (salaries), or nonexistent (such high margins and low marginal costs).
A lot of US revenue, so not a perfect fit on that front, but also a whole lot of non-US revenue.
And it checks the boxes of pricing power and availability at a reasonable price, depending on your view of the future.

The worst thing would be the reverse: a firm with most of its revenues in US dollars and most of its expenses in other currencies.
Say, a German car company that makes most of its money exporting cars to the US.

But remember: it’s the balance of revenues and expenses that matter, not where the firm is listed.
Some companies listed in Europe are really more like US exporters, and vice versa.

As an aside, the recent stretch with its burst of inflation but high US dollar has been strangely fantastic for me.
That’s because most of my investments are in the US, and most of my expenses in Europe.
The purchasing power of a US dollar has fallen in the US due to inflationary changes, but has risen in Europe because of the big rise in the US dollar.
When buying other currencies to spend, I’m getting 9% more for a dollar than I was on average in 2021.
And inflation in this particular region has been a bit slower than in most of the developed world. Latest print 4.8%.
So, even if the USD price of Berkshire had not risen at all in the last year, I’d have more wealth in it now measured as purchasing power, not less because of inflation.

Jim

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The ideal business would be one with most of its expenses in US dollars, and most (or a lot of) of its revenues in other currencies, and reporting in US dollars…

Just a follow up

I did a few searches to try to find a good hunting list, but it’s hard to find.
In theory there is a list of 250 companies from within the Forbes Global 2000 ranked by “foreign revenues as percent of total revenue”
But I can’t find that list, only the top 10 from that list from 2017.
https://www.statista.com/chart/11619/the-us-companies-with-t…
I looked up the ROE figures for those firms…yowza. It might be a very nice hunting list indeed, even if the ranking is old.
Though I’m happy to skip PM.

However, here’s the interesting bit.
I did find the main page for the current Forbes Global 2000. (just not the export ranking subset)
https://www.forbes.com/lists/global2000/?sh=1c9ec7d55ac0
Companies are ranked by four metrics: sales, profits, assets, and market value.
They then combine those to get an overall rank.

Rank #1 is Berkshire Hathaway – Go Warren!
"Berkshire Hathaway took the No. 1 spot for the first time since Forbes started publishing the
Global 2000 in 2003, dethroning the Industrial and Commercial Bank of China, which dropped to No. 2
after nine consecutive years at the top of the list."
Not that close, either: we beat ICBC on three of the four metrics. Eat our dust!
Interestingly, Berkshire doesn’t dominate on any one rank, only the combination.
The “sub ranks” are 12, 3, 44 and 7.

Jim

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