Vacation Exchange Rate Arbitrage

By: Frank Armstrong, CFP, AIF
Our European cousins are born with a finely honed sense for currency values. They instinctively know where their currency is strong, and flock there in large numbers. Sadly, Americans lack this vital chromosome. They are seemingly oblivious to talk of strong dollars or weak Euros.
The Euro has plunged to its lowest ever value against the dollar in recent months. There is good news and bad news as a result. This is bad news for U.S. exporters. It’s good news for importers, as foreign goods cost less in dollar terms. It’s bad for US multi-national corporations. Their foreign profits shrink when converted to dollars.
A weak Euro is distinctly bad news for American investors holding European assets. Our un-hedged foreign equity funds were impacted by the Euro weakness. (However, the bond fund hedging prevented any erosion of value.)
While we certainly can’t celebrate our foreign portfolio this year, there is one glimmer of consolation: If you had ever considered a trip to Europe, now is the moment. Europe is on sale, big time! I recently returned from a two-week trip to Italy, and I know I would have spent more if I had stayed home.
On the other hand, far less German is being spoken on Miami Beach. Just a few years ago, working class Europeans “invaded” South Beach (SoBe) with their strong currency. Times have definitely changed. English is again the predominant beach language. So, you don’t need a degree in Economics. You don’t need to check the Wall Street Journal. If you want to know if the dollar is strong or not, just stroll down to SoBe.
Europeans seem to be far more knowledgeable about where and when their currency is strong and they vacation accordingly. This simply reflects the European understanding of what I like to call Vacation Exchange Rate Arbitrage (VERA). Simply stated, go where your currency is strong. If it’s not strong, stay in your own country. The Europeans are staying home, but the masses of vacationing Americans just don’t get it yet. They are staying home, too!
You heard it here first, folks. The Euro will not stay weak forever. So, go for it. Pack up and head for the old world.

By | 2018-11-29T16:25:16+00:00 September 19th, 2012|Blog|

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