The Powerful Case for Investing in Foreign Equities

By: Peter Schiff | Sat, May 28, 2005
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For the past five months I have been submitting economic commentary to this web site, and have received a significant number of emails from those of you sympathetic to my point of view. However, merely pointing out the many problems confronting our nation in general, and our currency in particular, is of little practical use if one does nothing preemptive with the information. The purpose of this submission is to suggest a course of action to put the insight gained from reading my commentaries to such use.

The U.S. economic ship of state is going to sink. As the problems with her hull are structural, current efforts by government officials and central bankers to plug up the holes will not keep her afloat. Though I remain hopeful that she may one day be salvaged and returned to a sea-worthy condition, there is nothing collectively that we can do to alter her fate, or that of the millions of Americans, ignorantly dancing the night away on the lido deck. However, individually we can take defensive action to protect ourselves and our families by getting off the ship. In my opinion the life boat of choice is a carefully selected portfolio of conservative, high-dividend paying, non-U.S. export dependent, foreign equities.

Such investments provide three potential sources of protection. 1. They pay good dividends, many of which qualify for the lower dividend tax currently in effect. 2. More importantly, as such dividends are paid in currencies other than the U.S. dollar, their value will rise as the dollar falls, as will the principle value of the underlying shares. 3. They provide the potential for true capital gains, as the shares themselves may appreciate in terms of their local currencies.

As a result of these three separate and distinct sources of current income and capital gains, the U.S. dollar need not be falling for a portfolio of foreign stocks to produce positive returns. For example, thus far this year, though the U.S. dollar Index has risen approximately 7%, many investors in non-dollar equities have nevertheless experienced positive returns during this period resulting from dividends and local currency stock appreciation, even as holders of lower yielding U.S. stocks have suffered losses.

However, it is during a potential dollar crises that such a portfolio will be of the greatest value. Since no one can be certain when the inevitable collapse will occur it is better to be prepared. When it comes to getting out of the dollar, there are two possible ways to do it, either too early or too late. For my self and my clients I choose the former. Though the dollar will predictably experience several counter-trend rallies along its downward path, as is the present case, it does not make sense to attempt to trade them. It would be the equivalent of leaving the safety of your lifeboat, hoping for one last dance aboard a doomed ship before it sinks.

Also, it is important not to confuse a desire to go down with the ship with patriotism. Such "patriots" who stand on deck saluting the flag as the ship sinks, will likely be of little assistance to other survivors left treading water. Only by safely positioning ourselves aboard sea-worthy lifeboats now, will we be able to participate in any future rescue efforts. Protecting our wealth today allows us to repatriate it tomorrow, to help rebuild a viable American economy.

To download a free copy of my most recent, far more comprehensive, research report entitled "The Collapsing Dollar -- The Powerful Case for Investing in Foreign Equities" click the following link, or visit


Peter Schiff

Author: Peter Schiff

Peter Schiff C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.

Peter Schiff

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly. As a result of his accurate forecasts on the U.S. stock market, commodities, gold and the dollar, he is becoming increasingly more renowned. He has been quoted in many of the nations leading newspapers, including The Wall Street Journal, Barron's, Investor's Business Daily, The Financial Times, The New York Times, The Los Angeles Times, The Washington Post, The Chicago Tribune, The Dallas Morning News, The Miami Herald, The San Francisco Chronicle, The Atlanta Journal-Constitution, The Arizona Republic, The Philadelphia Inquirer, and the Christian Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg. In addition, his views are frequently quoted locally in the Orange County Register.

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkley in 1987. A financial professional for seventeen years he joined Euro Pacific in 1996 and has served as its President since January 2000. An expert on money, economic theory, and international investing, he is a highly recommended broker by many of the nation's financial newsletters and advisory services.

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