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The strengthening US dollar and falling gas prices

Originally published on the Tahoe Daily Tribune http://www.tahoedailytribune.com/news/opinion/13221187-113/dollar-falling-prices-foreign

Gasoline prices in the U.S. are at a seven-month low. According to AAA, the national average for regular right now is $3.34, and many experts predict that it will continue to fall for the remainder of the year.

If you fill up in the Lake Tahoe area, you’ll be paying a little more than the national average, but we have still seen prices drop in the last few months.

OK — you’re paying a lot more than the national average, but they’re still not as high as they were awhile back.

One reason the price of unleaded gasoline has been falling is because the U.S. dollar has been getting stronger. The dollar has been rising for 11 straight weeks, and that’s the longest win streak for the dollar in over 15 years.

There are advantages and disadvantages to a stronger dollar. Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. said, “In general, a stronger dollar is likely to be both an economic and a market positive.”

A strong dollar is generally positive for consumers; the falling price of gasoline gives shoppers more money to spend on other items.

In a year, a 50-cent decline in the price of gas per gallon will put an additional $50 billion per year into consumers’ pockets.

But, a strong dollar can be bad for corporate profits, especially for exporters, as their goods get more expensive in foreign markets.

It also can make their products relatively more expensive here in the U.S. compared to imports. Big multinational corporations that earn a lot of their income overseas can also feel some pain as the money generated overseas is worth less in dollar terms.

It also makes it harder for foreign investors to purchase U.S. stocks, but makes it easier for U.S. investors to buy foreign equities.

We could see a boom in global M&A, merger and acquisition activity as U.S. corporations look to invest cash overseas and take advantage of the strength in the dollar versus the Japanese yen, the Euro and other global currencies

The Chinese could be a winner, too, because they hold huge amounts of U.S. dollars in reserve. China has almost $4 trillion in foreign reserves, most of which are U.S. dollars.

There are certainly advantages and disadvantages to having a strong dollar, but I don’t think anyone around here will be complaining about falling prices at the gas pump.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.


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