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How’s Business?: Dollar smarts

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Do you remember the story of “Chicken Little”? It’s the story of this chicken that felt a drop of rain and ran all over town yelling that the sky is falling.

Today we have a similar situation, only it is those who are running around saying that the dollar is falling. Is the dollar in a free-fall? It could be, but that is never a certainty. We are not in virgin territory.

Past performances in exchange rates are fundamentally irregular. But what should not be overlooked is that a declining dollar spells big opportunity for firms in Queens that export abroad. It makes our local products and services more attractive each day as a result of far lower competitive pricing. This is why China is in no rush to float its currency in its daily undercutting of competitive prices.

It is the same reason countries such as Japan and Germany buy back dollars in their daily attempt to remain competitive. But how long can this last? The United States imports far more than it exports. At present, our trading partners abroad are actually taking IOUs from us to the tune of an approximate $2 billion daily.

It reminds me of the neighborhood Italian deli when I was a kid. You would go in and pick up what you wanted and you ran up a tab. But if the tab got too big, you’d get a call for payment. It is a similar situation here, too.

When foreign investors have come to the conclusion that they have had enough, you can get ready for the real plunge in the dollar. Should you be worried? Unless you’re rolling the dice in the foreign currency-trading pit, then the answer is absolutely not. Our dollar will always be our dollar. If anything, it will make our products here cheaper and foreign products far more expensive, which will be quite positive to our local bottom line.

And some worry that a falling dollar abroad will pull down the stock and bond markets, but history indicates that it will not. Take the last nine months, for example. The dollar has really tanked, but the equity markets raced north; however, an extended period of decline just may emulate the crash of October 1987. That was when the dollar floundered for a three-year period between 1985 and 1988.

So how will a falling dollar affect Queens business? It spells big opportunity if you are in the exporting business. Those in such businesses should take advantage of what is a timely, rotating opportunity.

Joe Palumbo is a private asset manager as well as the fund manager for The Palco Group, Inc. an investment company at www.palcogroup.com or 718-461-8317.

Updated 10:25 am, October 12, 2011
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