No. of Recommendations: 2
I think the lack of an obvious link between a falling dollar and US inflation is primarily the result of two things:
(a) time lag. It could take 2-3 years to show up.
(b) there are just so many other factors that determine inflation in a given year that it's all pretty messy.
Still, I don't think it's a coincidence that domestic US inflation around 2002-2007 was 3.0%/year while the dollar was falling, then 1.5%/year in the next ~9 years while it was rising.
I agree, I view it as a head-wind/tail-wind. The order of magnitude you listed is what I would have guessed.
What can you to do mitigate it for yourself? Have some investments in non-US things. Cash, bonds, or companies with mainly non-USD revenue. Conversely, have your debt denominated in dollars. If investing in the US, prefer exporters (USD expenses and non-USD revenues) to importers.
Yes, I typically keep about 20% of my investments in non(less)-dollar impacted investments but then you need to consider the expected return on those investments even with a US tail-wind (head-wind) not so easy. Also predicting currency movements is even harder than predicting business performance - hence the "too hard bucket". But I appreciate your suggestions - your willingness to share ideas is very helpful even if I don't act on them.
Interesting you mention the extreme notion of getting a job in a different country. I have a friend in Japan who quit her local full time gig for a remote part time one billing in different currencies. The yen was falling so much she's better off.
Well, I actually did this myself, moving from Canada to the US in 2008 (turned out to be very good timing as the CAD has dropped about 30% since I left; I managed to liquidate about 80% of my CAD investments (mostly real-estate) at the time. The fact 80% of my savings since then have been in USD has been a very net positive; maybe that will evaporate over the next 10 years, but again see the "too hard" comment above.
tecmo
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