Reasons why you should not plan to park your money outside United States
Mina Chanda
Feb. 12, 2007

The last thing anyone should do is to park his or her money outside the United States. There will be a lot of adjustments in the American economy. But at the end of the day after massive slowdown of the world economy, U.S. wills relatively the strongest economy because of its purchasing power.

US Dollar, contrary to what most of the market believes, will go up sharply in the next five years. Some analytic estimates go as high as 160 in Dollar index. Today Dollar index hovers around just below 85. Some believe it will just reach 120. The Dollar’s rise with respect to all major currencies except that of Asian nations will be very significant.

As rest of the world starts facing depression, there will be gold rush to park the money in US. That will push dollar index further higher. The Asian Central Banks will sell their treasury holdings. That will raise long tem bond yields. Because of great yields on the long end of the treasury, the dollar index will go up further.

Now, assume you parked your money in the Euro zone with Dollar index at 85. What happens if you decide to bring it back to US when dollar index is at 160? You got it right; you get half the money back.

For sophisticated investors, one option is to keep the money abroad but buy dollar index calls as insurance. You can also buy euro currency put options in the futures market if you parked your money in Euro zone. This method helps you get a good return where you feel comfortable and then protect yourself from major currency fluctuations.

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