A Dollar Short

Posted by Matt Purdue

My heart skipped a beat this morning when I read the FT’s coverage of an Italian real estate group’s intention to up its stake in the iconic Flatiron Building in Manhattan. The 22-story Flatiron, considered America’s first skyscraper when it was finished in 1903, is best known for its distinctive triangular shape—apparently mimicking a flatiron, an ancient device that was used to press clothing before God created dry cleaners.

The family-run Sorgente Group, which focuses on buying historic buildings (they own a piece of the Chrysler Building), seems to have big plans for the Flatiron, including a luxury hotel and a perfume called, naturally, “Flatiron.” Just how they’ll capture the distinctive smell of Live Bait on 23rd Street remains to be seen…or smelled. For the past four years, I’ve lived within a five-minute walk of the Flatiron, and I’d hate to see it change. But if I were an Italian real estate magnate, I’d be buying up as much Manhattan real estate as I could get my hands on, too. Today the dollar is at embarrassingly low levels against most foreign currencies, particularly the euro. In short, the dollar is broken.

For any U.S. enterprise doing business overseas, the fall of the dollar may make it that much more expensive to fund foreign operations (Although it also increases foreign-currency earnings "repatriated" into dollars for the income statement). The White House is concerned that the weakening dollar is leading to higher oil prices. Even our foreign neighbors don’t altogether dig a limp greenback. European and Asian nations that depend so heavily on exports to the U.S. complain when the dollar falls because the prices of their goods and services rise…making Americans more apt to buy homemade products. And the foreign central banks that love to buy U.S. government debt (thereby helping to finance our economy) don’t like getting less for their money in an era of falling interest rates.

In short, the world benefits when the currency of the nation’s largest economy is strong. The next time you sit down with a client to discuss yet another new product press release or a speaking opportunity at the same old conference, try elevating the conversation. Ask the client how the fall of the dollar is affecting their global operations and see what happens.

Comments

[Milos Sugovic]

I think you raise an interesting point here. Corporate executives shouldn’t be preoccupied with labeling the dollar depreciation at a macro level as either good or bad - it’s clearly both. What’s more important is identifying the relevant chain of events at the micro level that result from a weak dollar and fine-tuning strategy accordingly.