Wife’s Professor Weighs In On Dollar Devaluation
My wife’s currently pursuing her Master in Accouting with emphasis in Taxation. One of her professors is a pretty smart guy and usually spends 6 months of the year travelling abroad and generally enjoying himself. I’m assuming he makes a lot of money from his investments, book royalties and consulting gigs [apart from the salary he gets at college].
A few days ago he mentioned that he investing heavily in Australian dollars and that he thought the US Dollar was overvalued by 40%!!! I think 40% is a little steep. Maybe the local real estate is overvalued by 40% but the dollar can’t be that high can it ???
I personally think the dollar will drop 20-25% over the next few years which is why I’ve been buying commodities and commodity stocks. But a 40% drop!! Why that could set me up for life! [just kidding, i'll make twice as much money in my investments, but inflation will still kill me]
Anyway, I just picked up Getting Rich Outside the Dollar by Christopher Weber & Leonard J Reiss. It was written quite a while ago, but the underlying concepts should be the same.
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September 1st, 2006 at 6:20 pm
Well it depends which currency you are comparing it to. Against the RMB that number is in the ballpark. Against other currencies like the Euro, pound and Yen – they are free floating and so in terms of an equilibrium the dollar is not overvalued. In terms of what the money buys I think it is clear that prices for most things are lower in the US. The Economist’s Big Mac Index is a good rough indication. Actually recently I have been wondering whether selling Euros and Sterling and buying USD would be actually a good move. Certainly the Yen now does look cheaper than ever. I have done well by having the majority of my money in AUD. But short term it isn’t looking that hot. Bottom line, I don’t think 40% overvalued means much… Anyway even if the USD falls in value against foreign currencies that has only indirect and more limited effects on inflation in the US.