The Dollar's Day

It's back on the upswing.

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The dollar is back to its highest levels this year against the euro ( chart) and other currencies, and that means it might be time to take a fresh look at investing in America.

Richard Bernstein, chief investment officer of Merrill Lynch, outlines the shift:

The phrase "the US dollar is becoming the US peso" was useful shorthand a while ago. But the dollar has staged a nice reversal since its trough in April (the DXY Index is up by about 10%), and it seems to be marching higher against a broad range of currencies.

That strength in the currency, Merrill says, shows that the appeal of U.S. assets is growing as the rest of the world follows America's lead into an economic slowdown. (The thought is that we'll recover first, too.)

So what to buy?

We'd emphasize the health care and consumer staples sectors, developed market equities (particularly in the US and Japan), and Treasuries.

Another take: Longtime economy watcher and author David Smick at Johnson Smick International says the downside of a higher dollar (namely, that it'll kill demand for U.S. goods abroad) isn't that big a deal. His take:

The conventional view: the U.S. export machine will soon sputter. But it is possible a different scenario unfolds. U.S. productivity is soaring. American manufacturers have probably already outsourced everything possible to outsource. So the downside of dollar appreciation may be overblown.

There's still plenty to worry about in the economy and in the fact that the dollar's return to favor may be more about troubles in Europe than strength in America, but the reversal, along with hopes for more clarity in the credit markets after the Fannie Mae/Freddie Mac bailout, could set the stage for some good news to come.