The U.S. dollar's seesaw ride. The beaten-up euro sent the greenback flying last week. At first blush, the dollar bill's increasing value seems like a good thing, but it can actually be quite detrimental. That's because it eats away at the profits of U.S. companies that sell their products abroad. "That can be just about any major company in the U.S. these days," says Jeff Tjornehoj, Lipper's research manager for the United States and Canada. "Companies like GE have huge business operations outside the U.S., and that's just the tip of the iceberg." It's no surprise, then, that GE was one of Monday's big winners. During early-morning trading, its share price shot up, indicating that investors expected that the euro would regain some of its strength.
The gold rush. Gold, which has long had a reputation as the panicked investor's best friend, shot up to $1,200 per ounce last week. But following Monday's calming news, it tumbled off of that peak. Going forward, gold investors will face a number of nagging questions. For starters, is inflation a big concern? And will investors continue to panic about Europe? If the answer to both of these questions is 'yes,' then gold may eventually continue its march upwards. "Is there an opportunity for gold to move higher? I think there definitely is," says Tjornehoj. "Are we going to see the types of returns that we've seen over the past 10 years? That I strongly doubt."
Foreign stocks. Last week was a scary time in the global stock markets, but Monday's rally may give some relief to nervous investors. Benz says it's important that investors stay diversified outside of the United States. "You probably want to stick with significant exposure there because realistically, a big share of growth is going to come from foreign markets—maybe not necessarily Europe, but elsewhere overseas," she says.
A short fuse. As recently as last week, buying credit default swaps on the PIGS (Portugal, Italy, Greece, and Spain) seemed like the fashionable thing for high-net-worth investors to do. These swaps, which are essentially like insurance policies, allow investors to profit when a country's sovereign debt loses value. But Monday's news put downward pressure on the value of CDS contracts tied to euro-zone countries. "Now that the risk of default … is backing off because of the bailout, it's possible that some of those earlier CDS purchases that were made to protect against a default could have lost quite a bit of money at this point," says Kevin McPartland, a senior analyst with the TABB Group, a financial-sector research and advisory firm.
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Summer of IL 1:19PM July 06, 2010
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