Friday, July 10, 2009

Volume 3, Issue #62

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The Silver Lining to a Falling Dollar
-- By Carla Pasternak, Editor, High-Yield International
The U.S. national debt sits at more than $11 trillion dollars -- double its total from just 10 years ago. That's so much debt that some are questioning the dollar's status as the world's reserve currency.

But there is a silver lining for income investors. This massive spending, combined with movement out of U.S. Treasuries, is going to take its toll on the dollar, and international income investors could reap the rewards in the form of higher dividends. Read on to see just how much a falling dollar can boost your income stream. (Full Story Below)

Also in Today's Issue...

"Oxy-Coal" Stocks See $ Signs
Coal is abundant and cheap. It provides 50% of the electricity in the U.S. -- and we've got a 400 year supply of the stuff.
There's only one problem: it emits nasty carbons -- greenhouse gases responsible for global warming.

Enter "Oxy-Coal". This game-changing technology burns coal with ZERO emissions. The companies that control this technology should make early investors a fortune.

Get the names of my favorite two "oxy-coal" stocks here.

What Terrifies Bill Gates
Bill Gates is the richest man in the world. Forbes reports his personal fortune is a bank-busting $40 billion. So what makes a man this powerful nervous? The fact that software is obsolete. And 70% of Americans are already using the technology that will replace it - without paying a dime to Microsoft.

Get the full story and the names of 2 companies that will profit most from the death of Microsoft in a free report from The Motley Fool called, "The Two Words Bill Gates Doesn't Want You to Hear..."

Click here for instant access to this FREE report!
The Silver Lining to a Falling Dollar

Living in Canada, I see first-hand the impact of the falling U.S. dollar. From 2002-2007, the Canadian dollar soared uninterrupted over its stateside counterpart.

Over that time, it usually cost me less and less to purchase anything in U.S. dollars... whether it be investments or even vacations. Even though I was spending the same amount of money, my Canadian dollar simply went further in the United States.

If you're living in the U.S., don't fret. You can take advantage of the same phenomenon by investing abroad. And if you're an income investor, you'll find that your dividends can soar because of it -- even if the underlying company doesn't raise them a cent.

How Far the Mighty Fell
From a peak in July 2001 to a low in April 2008, the U.S. Dollar Index fell by a staggering -41%. As world economic growth exploded, investors somewhat shunned the U.S. markets, instead focusing on developing nations with high growth prospects.

Meanwhile, U.S. deficits began to soar at an astounding rate. Public debt ballooned over +50% from $6 trillion in 2000 to over $9 trillion in 2007. As you likely know, heavy debt loads can lead to instability in a company or a country. And with foreign markets booming while the United States racked up more and more debt, entities around the world demanded fewer dollars -- helping lead to its long-term decline.

 

However, with the onset of the financial crisis, the trend reversed. As economic crisis spread, investors parked cash in still safe-haven U.S. Treasuries to ride out the storm. As a result, during the height of the financial turmoil -- July 2008 and March 2009 -- the U.S. Dollar Index soared +24%.

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But now the long-term downtrend seems to be reappearing as the fundamental reasons for the dollar's prior decline have been dramatically amplified in recent months. The U.S. government has been borrowing and spending like never before. The Obama administration estimates budget deficits will soar to $1.84 trillion in 2009 and $1.26 trillion in 2010.

And as panic from the financial crisis has waned, dollars are flowing out of dollar-denominated assets like Treasuries and into foreign investments once again -- even though some of those foreign countries have debt loads and credit ratings that are worse than the United States'. The U.S. Dollar Index has already fallen -10% since March, and that's good news if you're investing abroad for income.

Falling Dollar = Higher Income
By investing abroad, you'll see your dividends increase in dollar terms as the U.S. dollar falls.

For example, between July 2001 and April 2008 the dollar lost -46% of its value relative to the euro. Let's say over that time a European stock paid 5 euros a year in dividends. In 2001, you would have received just US$4.20 in exchange. But after the dollar fell, that same 5 euro payment would be converted to US$8.00 in 2008 -- an increase of over +90%, even though the actual payment didn't increase by one cent.

Investing abroad isn't as exotic as it sounds, either. Many foreign companies trade right on the NYSE. They simply make dividend payments in their native currency and then translate them over to dollars for U.S. investors. In addition, several full-service and discount brokers offer direct access to foreign exchanges denominated in foreign currencies.

Either way you go, as the dollar declines, your income and the value of your dividends will increase in dollar terms. And given how enormous deficits and continued foreign investment will take their toll on the dollar, this boost could happen sooner rather than later.

If you want to take advantage of the falling dollar, you might like CPFL Energia (NYSE: CPL). I'm looking at the Brazilian energy giant right now... it already yields a whopping 7.8% based on payments totaling about US$3.70 in the past year. And over the past four months, the dollar has fallen about -20% against the Brazilian real. If that continues, you'll see even higher payments from CPFL in dollar terms.

Good investing!

-- Carla Pasternak
Editor
High-Yield International

P.S. -- My July issue of High-Yield International is now available . In it, I share some of my favorite ways to turn the falling dollar in your favor, including a list of 10 star performers from around the globe. You can get my issue by just follow this link.

 

Additional Investing Ideas

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This Undervalued Telecom is Quickly Becoming the Latin American AT&T
While most telecom companies have struggled in the downturn, this emerging-market wireless service provider has managed to increase profits by +19% in the first quarter. It is also the sole provider of 3G in many South American countries and should benefit as customers upgrade from inexpensive prepaid plans and sign up for mobile broadband and other premium services. Best of all, the shares could jump in excess of +50% as they return to Nathan Slaughter's -- editor of Half-Priced Stocks -- estimated fair value.

World Cup Could Score Big Gains for South Africa
From Brazil to China to Russia, emerging markets have been fertile investment grounds, recovering nicely from March lows. However, It's not just BRIC countries posting stellar gains; South Africa is up +50% since its March lows and that's just the beginning. Next summer, South Africa will host the world's most visible sporting event, the World Cup. The government has already started the spending spree, constructing stadiums to hold spectators and rail systems to commute them. The inflow of cash to South Africa's economy will ensure that it's an investment hot spot in coming years.

How California Could Ruin the Recovery
A crisis is underway in Sacramento. The state of California has a $24 billion budget gap. With no solution on the horizon, lawmakers have until July 1 to resolve the issue. If the state can't meet its debt obligations in time, it faces the prospect of a possible multi-notch downgrade. Add this to the fact that California has the worst credit rating in the country, and you have the makings for a possible full-blown meltdown.
Visit this link to read additional articles from today's leading market experts!


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