The Puzzling Performance of a Strong U.S. Dollar

It May Hit Corporate Profits, But It’s Great If You Travel To Europe

Let's get started with where we all are in the midst of. And that's the turmoil you've been experiencing personally and observing in the economy. There's one segment that is doing incredibly well, very, very strong. The U.S. dollar, we compare the value of the U.S. dollar to other currencies around the world. We discover that our dollar is going up in value and other countries’ currencies are going down in value. Well, is that a big deal? Isn't that good news?

Well, not necessarily. Johnson and Johnson just reported that its profits are going down because the dollar is going up. The company says it generates half of its sales outside the US. So think about this. If you live in Europe and you want to buy a product from J&J, you've got to use your euro to buy something that is manufactured in dollars. So the lower your euro, the more of them you got to spend. In other words, you've got a big price increase for Johnson and Johnson products. Even without inflation, J&J says that the strong dollar is costing the company $4 billion in sales. Microsoft and IBM are saying the same thing. The dollar so far this year is up 12%. So a strong dollar is actually bad news for American businesses trying to sell overseas.

Now, there is a flip side to this. As an American living here in the U.S., if you want to travel overseas, like take a vacation in France, it's a bargain because the US dollar is so strong compared to the euro. So it's great news for an American who's buying overseas goods or traveling overseas, but it's bad news for American businesses that are trying to sell to overseas consumers.

Hey, speaking of the dollar, speaking of cash - okay, I wasn't really, but I'm going to use that as a segue here. Mutual fund managers and ETF managers have now boosted their holdings of cash to a 21 year high. We haven't seen them holding so much cash since 2008, and we know why they did that back then. 58% of fund managers say they're taking less risk than usual.