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Why go abroad? To make Euros (or dirhams)!

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Why go abroad? To make Euros (or dirhams)!

Post by momopi » December 3rd, 2007, 10:45 pm ... ck_check=1

America must live with being a bargain basement

By John Gapper

Published: November 30 2007 18:35 | Last updated: November 30 2007 18:35

It is the holiday season in New York City. Thanksgiving is over, the decorations are up on Fifth Avenue and the Christmas tree in Rockefeller Plaza has been lit this year with energy-efficient light-emitting diodes rather than the traditional lightbulbs. All that remains is for New Yorkers to spend money.

To shop in New York this year, however, is to hear a rich array of European accents. In Bloomingdales the other day, two French women were debating the quality of Ralph Lauren towels. As I crossed Avenue of the Americas this week, I heard a British family complaining about the eggs they had for breakfast.

In 1973, Genesis released an album called Selling England by the Pound. It was the time of the oil shock and the album looked back nostalgically over a wealth of English sub-culture. Coincidentally, the Genesis tour of the same name is being recreated in December in New York by the Canadian band The Musical Box, which will perform a multi-media tribute in Tribeca.

These days, with oil approaching $100 a barrel and the Middle East once again overflowing with petrodollars while the US frets over the possibility of recession next year, America is being sold by the dollar.

The shopping surge is due to the weak dollar, which is approaching $1.50 to the euro and is above two dollars to the pound. It is cheaper for Europeans to take a flight to New York for their Christmas shopping than to do it in their own countries.

Rampant European consumption is not confined to Christmas presents. The New York housing market has until recently defied the gloom in other states and carried on rising. But dollar weakness makes New York apartments seem cheap to foreigners: some condominium developers are increasingly relying on foreigners to sustain demand.

The effect is a bit insulting: the Ugly American of the 1958 novel, who swaggered around the world with a strong dollar and inviolable set of beliefs, has given way to picky French and shirty Brits. But most New Yorkers see the benefits of foreigners keeping their city buzzing.

Americans are less sanguine about what is happening to US businesses, which are being snapped up by overseas investors as eagerly as luxury items in Saks Fifth Avenue or Bergdorf Goodman.

The investment arm of the Abu Dhabi government this week struck a deal to buy 4.9 per cent of Citigroup, one of the US banks that has been badly hit by the subprime credit crisis. Another Abu Dhabi fund has acquired 8 per cent of AMD, the US chip manufacturer.

Dubai, another of the United Arab Emirates, has been on the prowl for US assets, buying 9.9 per cent of the Och-Ziff hedge fund. Others are looking in the US as well. SK Telecom, the South Korean operator, this week made a joint approach with Providence Equity, a private equity firm, to take a $5bn stake in Sprint, the US mobile operator.

All of this activity has awakened memories of the period in the late 1980s and early 1990s when Japanese investors bought US trophy assets including the Pebble Beach golf course in California. That coincided with US introspection about whether it was being overtaken as a manufacturing power by Japan and by other Asian countries.

Todays imbalance is less industrial than financial. The US has been running a large trade deficit with the rest of the world, importing manufactured goods from Asia and energy from the Middle East. That has created a savings glut in Asia and boosted sovereign wealth funds set up by states such as Abu Dhabi.

The funds are now flowing back in the form of capital investment. In the past, Arab governments mostly put their petrodollars into Treasury bonds but they are now spreading into equity as well. It is a natural financial rebalancing act but it unnerves some politicians and commentators.

The Wall Street Journals editorial page this week recalled that Sheikh Zayed, father of the current ruler of Abu Dhabi, owned the fraud-ridden Bank of Credit and Commerce International in the 1990s. It warned that Arab interests will now have inordinate sway over Americas largest bank, since Prince al-Waleed bin Talal of Saudi Arabia already holds a 3.9 per cent stake.

So far, the latest round of stake-building by Arab investment funds has provoked less furore in Washington than the takeover of P&O by Dubai Ports World last year, which led to the Dubai company having to shed its interests in US ports. The political oversight of foreign acquisitions of US companies was tightened as a result.

But what can the US expect if it lives beyond its means in the way it has in recent years? Its consumption patterns and use of energy have turned other countries into its piggy bank. The credit squeeze has left its financial institutions with weakened capital and in need of equity that Arab funds can provide.

If US consumers had saved more, spent less, and filled up their SUVs less frequently and US financial institutions had not embarked on their own credit binge they might not be in such an embarrassing condition. But they acted as they did and must live with a weak dollar.

Perhaps those in Washington and elsewhere should adopt the attitude of New York to foreign money. The city might prefer the dollar to be strong but euros, pounds and UAE dirhams are supporting retailers, property prices, and Wall Street. You have to take it where you can get it.

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Post by momopi » December 4th, 2007, 2:09 am ... 38,00.html

Thursday, Nov. 29, 2007
A Great Time to Shop for Foreigners
By Justin Horwath and Jake Grovum/Bloomington

Gunnhildur Lilja Sigmundsdottir came to Minneapolis from Iceland late last week with nothing but pajamas, underwear and an empty suitcase. But during four days of shopping at the Mall of America in Bloomington, Minn., she snagged a wedding dress, five pairs of shoes and seven pairs of pants. "If I needed anything, I just bought it," she says. "[Currency plays] a very big role because the dollar is so low right now." The United States has the best deals in the world right now that is, if you're not American.

Overseas shoppers whose countries have a stranglehold on U.S. currency are parachuting into to places like the Mall of America as if they were diplomats finding deals and flying back to their homelands with their suitcases filled. "They're mentioning the exchange rate more often" as the reason for their visits, says Dan Hildebrant, an assistant sales manager at Oakley, whose sunglasses store in the Mall of America is a beacon for European and Asian shoppers. The numbers are hard to argue with. A Briton shopping at Oakley could buy a $120 pair of newly released Industrial M Frames sunglasses for 60 pounds. Two years ago, the same glasses would have cost more than 70 pounds. A buyer from France can get the same pair for about 80 Euros; just two years ago she would have had to spend 102 Euros.

Lee Preston was lured to the Altamonte Springs mall in Florida because of the favorable rate, flying in from Britain for Black Friday last week. Showing off three expensive watches to his traveling companions, Preston said the dollar's woes have made his trip especially economical. "I'm sorry for you that the dollar's so low but it's nice for me," Preston told TIME. In the shops of Manhattan, British accents are almost as common as those from New Jersey.

It's all part of the sinking dollar's mixed messages to the American public. Mark Bergen, chair of the marketing department at the University of Minnesota's Carlson School of Management, says the psychology of the falling dollar can be viewed through two different frameworks. For the pessimistic consumer in America, their buying power is depleting as foreign-made goods become more expensive. But for the optimistic economist, America is merely paying off the trade deficit and boosting its gross domestic product. "It can kind of shake your confidence a little," Bergen says. "It's just kind of a thing that looks bad. But when people are looking at the health of the economy, it can just help in the long run." Bergen says he doesn't expect trends to change anytime soon.

At the Holiday Inn near the Mall of America Tuesday, Evie Walters, director of sales at the hotel, opened a big conference room packed with luggage belonging to Icelanders, whose patronage is especially popular here due to cheap flights and no taxes on clothing and shoes. Most of them, like Sigmundsdottir, come before the holidays and book rooms for about a week, with nothing but the clothes on their backs, and leave with over 50 pounds of clothing and toys. "They're power shopping here every day," Walters says. Many interviewed after Black Friday say they spent upwards of $5,000 each.

Although U.S. consumers are feeling the pinch of the waning dollar, both domestically and abroad, the American seller's ear is keen to accented English. At the Mall of America, the number of international visitors has jumped 10% this year, according to Doug Killian, associate director of tourism at the mall. "We're finding in some cases that a shopper might need a pair of shoes, but because the exchange rate is so favorable they'll buy three or four pairs," he says. Sigmundsdottir said one pair of Puma sneakers costs the equivalent of $200 in Iceland, so she bought two pairs at the Mall of America for $89 apiece. "Anybody who's selling is going to love this," Bergen says. With reporting by Michael Peltier/Miami

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Post by momopi » December 4th, 2007, 2:11 am ... 11,00.html

Monday, Dec. 03, 2007
Should You Bet Against the Dollar?
By Maria Baugh

With the dollar near record lows, more American investors are starting to think about whether it's time to start dabbling in the foreign currency exchange market. Experts have one piece of advice: Be careful.

Few Americans are probably familiar with Forex, the international exchange market where the only thing traded is money. It is open 24 hours a day, five days a week, and a place where all the trades are done electronically. There is no central trading floor. Yet, at roughly $1.9 trillion worth of trades per day, it is by far the largest financial market in the world.

Some investors might look at the current currency climate as a prime time to hop onboard the Forex train. But the reasons for caution are many.

First, of course, there's hardly any certainty that the dollar will keep falling. Mark Zandi, Chief Economist of Moody's, believes the free-fall might be slowing: "I think the dollar is near a bottom via the Euro, pound and Canadian dollar. Foreign exchange markets are already pricing in a very weak if not recessionary U.S. economy and substantial Fed easing." And while he thinks the dollar still has further to go in relation to the Chinese Yuan and other Asian currencies he predicts another 5% to 7.5% until early in the next decade, when he thinks the Chinese-U.S. trade balance will stabilize jumping into the Forex probably isn't the smartest way to take advantage of this environment.

Second, and more important, investing in the Forex is extremely risky far riskier than the stock market. In the currency market, investing only a small amount of money can give the trader control over a far larger sum. That's because the fluctuation in the Forex is often so minimal that it would be difficult to see any real profit (or suffer significant loss) if trades were done in actual dollars. Brokers won't deal with you that way.

What they will do is leverage a ratio of "credit" to dollars to you. This varies from broker to broker and depends upon the size of the trade. It is usually no less than 50:1 and is typically 100:1. At a ratio of 100:1, that means for every $1,000 you invest, you're actually trading with $100,000 that is, you are actually carrying the risk on $100,000, the difference being a loan from the broker.

This arrangement is great for the winner, "Wow, I just made $1,500 off a $1,000 investment!" But terrible for the loser, "I lost WHAT? But I only invested a fraction of that!" That's why being an individual or "retail" investor in the currency market is not for the faint of heart.

Take Robert Skiff, co-founder of the Vermont Commons School, where he is an admissions counselor and the social sciences chair. In his downtime if the climate's right he is an avid currency trader. "I'm not very active right now," says Skiff from his home in northern Vermont. "You have to be willing to walk away if your models aren't going to fit," and he now feels the environment is too unstable.

Skiff considers himself a "quantitative trader," which is someone who uses "rigorous computer modeling and data schemes to find advantages." He calls the other type of investors "trend followers" or "qualitative traders," those who "look at charts and 30-day moving averages" to try to beat the market.

Because the foreign exchange market is so complicated, now might be the worst time to experiment with currency trading. But both Zandi and Skiff offer investors some sensible advice on how to make the most of the recent dollar drubbing. "I think the best way for individual investors to participate in Forex is to be sure to have a significant share of assets allocated to overseas stock and bond investments, particularly in Asia," says Zandi. "For the average investor wanting to play on the dollar falling, it would make more sense to invest in an index fund in [an overseas stock market]. Then you might get a kick from the falling dollar and the stock market of that country," says Skiff.

A final bit of age-old wisdom holds up for all kinds of investments, the Forex included. Says Skiff: "When someone says it's impossible for an asset to go down, run for the hills."

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