The U.S. Dollar is Falling Fast — Get Out Now

Early March 2009 is not only notable for its cheap stocks. It’s also the strongest the dollar has been since 2006. It’s also the strongest it will be for quite some time.

At its high on March 5, it took $1.25 to buy a euro. The dollar has since lost -13% of its value against the pan-European currency, and it now takes $1.42 to buy a single euro.

Against the currency of its largest trading partner, Canada, the situation is just as bleak. The U.S. dollar was worth as much as CAD 1.30 in March. It has since dropped -13% to CAD 1.11.

It’s much the same story around the world:

One US Dollar Buys 2009 Peak Now Change
Russian Ruble 34.53 31.03 -10%
Brazilian Real 2.43 1.90 -22%
Mexican Peso 15.47 13.32 -14%
Australian Dollar 1.59 1.23 -23%
Swiss Franc 1.23 1.07 -13%
Japanese Yen 88.76 94.50 +6%
Euro 0.80 0.70 -13%
British Pound 0.73 0.60 -18%
Canadian Dollar 1.30 1.12 -14%

Several things are at play here.

Huge imbalances were plaguing the U.S. economy before the global recession. Now it appears even worse. Both the trade deficit and budget deficit are massive and growing by leaps and bounds, and the huge increase in federal spending may induce inflationary pressure once the recession begins to turn.

The recession helped strengthen the dollar, for a time. In a flight to safety, investors turned to U.S.-Government Treasuries. An index that tracks the 10-Year Treasury Note peaked in December 2008 30% higher than it had been two years earlier. It has since shed a little more than half those gains.

While the dollar crash many have been predicting for some time now may or may not happen, the greenback‘s weakness is apparent. Investors should s consider limiting their exposure to U.S.-dollar-denominated investments. Now is time to move a significant part of your portfolio onto foreign exchanges, into U.S.-listed closed-end fund put together by the fine people at Templeton. And while I’ll tell you what they are in a moment, it doesn’t really matter where you put your capital as long as they’re reasonably well-run companies and funds that aren’t shackled to the U.S. dollar.

Any global index would work that either has a very small portion of its holdings in the U.S. or excludes it entirely. iShares All-Country World Index excluding U.S. (Nasdaq: ACWX) is a perfect fit. It’s a cheap and easy way to get broad exposure to non-U.S. equities.

As for my favorite ADR, I like Shell (NYSE: RDS.A), the Dutch oil and gas company. It’s cheaper than most of its peers on both a price-to-earnings and price-to-sales basis. It’s got less debt than its peers and it pays a healthy quarterly dividend north of 6%.

The closed-end fund I like is the Templeton Global Income Fund (NYSE: GIM). This fund offers broad exposure to a diversified basket of sovereign government bonds. GIM has been the number one fund in its category over the past one, three, five, and 10-year periods. During the 10 year time frame, the shares have posted a cumulative gain of +176%. Right now, you can lock in a yield of around 6%.