Educate Yourself - Corporate Credibility and A Weaker Dollar

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Corporate Credibility and A Weaker Dollar
by Charles B. Carlson, CFA
Dow Theory Forecasts

It was only a matter of time before the credibility questions hounding corporate America began affecting overseas demand for U.S. assets.

The dollar has been declining in value recently, which is causing nervousness on the part of investors.

There are many reasons for the decline in the dollar, not the least of which is the economic slowdown in the U.S.

But rest assured that the same reasons you are probably wary about investing in U.S. corporations - i.e. concerns about financial accounting - are no doubt weighing on the minds of foreign investors, too.

The U.S. has always been held up as the shining example of financial disclosure. In fact, a common reason given by investing xenophobes for investing in U.S. assets versus overseas assets is this reputation for accounting transparency in the U.S.

Now that the image of Corporate America as being a bastion of accounting conservatism has gone by the wayside, international investors are no doubt reexamining their reasons for owning U.S. assets.

To be sure, the dollar's value has ebbed and flowed over time, and the latest decline will not last forever.

Still, during a time when Wall Street needs as many buyers as possible to boost stock prices, it is significant that international investors are finding that perhaps the grass is not greener across the pond.

How can investors take advantage of the weaker dollar? For starters, you might want to consider holding some international exposure in your portfolio. True, international investments haven't exactly lit up the track over the last several years. However, to have some overseas exposure in a portfolio makes sense from a diversification standpoint, especially during a climate of a declining dollar.

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