October 14, 2007

The Declining US Dollar: Winners And Losers

Duncan Riley

69 comments »

Many within the United States might not have noticed the trend yet, but the rest of the world has: the US dollar is in serious decline. Americans have long made fun of their friends North of the border, but today the Canadian dollar buys $1.02 US dollars making it worth more than the Greenback. It wasn’t that long ago that the US Dollar was at parity with the Euro (December 02), but today it buys 70 Euro cents.Even the Australian Dollar is nearing parity, buying 90cents USD vs 55c in December 2002.

It’s not all doom and gloom however, and there are winners along with losers as the dollar declines.

Winners

Google
(and to a lesser extent Yahoo and Microsoft)

Google is a big winner from the declining US dollar, with its 2nd Quarter financial results indicating that 48% of Google’s income now comes from outside of the United States (3rd qtr results are due this week). Google operates in US dollars so 48% of its income (even if growth was completely static) is now worth more today than it was at the end of the second quarter. Of course it would be a surprising result if Google didn’t grow its overseas business in the 3rd quarter so expect that foreign income will tip over 50% of Google’s earnings for the 3rd quarter.

The flip side of course is that the declining US dollar is actually representative of issues within the US market itself so Google does face the real risk that either now or in the immediate future of seeing ad revenue decline if there is a broader downturn in the US economy. Its international exposure though should outweigh any such decline, and the market knows this, in part its why Google hit $600 a share.

Yahoo and Microsoft will benefit in terms of foreign revenue as well, although neither has the online presence (or marketshare) that Google does.

Non-US Startups

The cost of doing business in the United States continues to slide, helping break down the cost barrier that makes it difficult for non-US startups to compete with the Valley. Everything from travel, branch offices, and even more favorable lending markets helps level the playing field.

There are also ample opportunities for non-US affiliate style programs to strive ahead; a decent program that competes with Google Adsense but pays in Euros would certainly have a much broader appeal than it once would have.

Losers

US Startups

Although many are focused on the US market alone, smart startups know that there are markets beyond the US-Canadian border that provide growth opportunities that may not be available domestically in the highly competitive US market. The cost of opening foreign offices is becoming expensive as the dollar dives, and even basic stuff like outsourcing coding (which many startups do to India) is now becoming more expensive.

Anyone with a US Dollar exposure

Affiliates, bloggers and even coders are seeing income reduced as the value of the US Dollar drops. Much (or most) of the content and coding marketplace is run in US Dollars, which exposes bloggers who rely on programs such as Adsense, through to people writing for blog networks and similar writing positions.

with thanks to Paul Montgomery for the post idea.

Sphere It

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Hard News, Inc.

October 15th, 2007 at 12:52 pm

Comments

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nemrut

October 14th, 2007 at 9:30 pm

Duncan, are you pumping Google stock
Andre de Cavaignac

October 14th, 2007 at 9:30 pm

The dollar decline is more complex than just purchasing power. While it is very true that the dollar decline is affecting our companies, it is also doing alot of good for the economy. In the short term, the deficit we run with foreign countries must equalize. A declining dollar will mean less imports, more exports. Good for manufacturing (of software or otherwise).

Furthermore, those US Startups now have access to more foreign capital (its more feasible for foreign investors to invest, although they do risk some depreciation of assets), and also higher sales outside of the US, meaning they should be able to hire more US labor (read non-outsourced) because their profits can be higher.

In the end, the dollar should level out. The Euro really doesn’t have that much more backing it’s value than the dollar, it may even have less. With any luck we’ll lead in the race to renewable energies. Breaking the dependency of oil (and having foreign countries buy energy from us) would greatly boost the dollar value, as the oil sands boosted the Canadian Dollar.
B.Ackles

October 14th, 2007 at 9:31 pm

Thanks for the impartial coverage of an issue that could effect TC as well. I know startups are going to become less frequent in the near future. I read TC daily and from what I have read it seems like we are entering a period of uncertainty for ‘Silicon Valley’.

It would be interesting to go through the past year of startups and evaluate what you (and through comments the readers) see as the lonely survivors. I know there has been skepticism, but I think Facebook will prevail. I say this only because I think there will be few others that can even survive the coming storm (downturn in the market).

What will companies have to do to survive?
nemrut

October 14th, 2007 at 9:38 pm

@ 2, it also means that US consumer spending will slow down as imports become more expensive and the $ buys less. Since US consumption is the driver of economic growth around the world, a sliding $ does not bode well…
NicolasV

October 14th, 2007 at 9:41 pm

Among the winners, you could add US free-lance coders and designers, who have just become more competitive without giving up their starbucks breaks - see on rent a coder, the US is not tied for second place with Romania right behind India: http://www.rentacoder.com/Rent.....ACoder.asp
Amit Agarwal

October 14th, 2007 at 9:45 pm

With the declining dollar, international advertisers can buy more inventory on Google for the same prices. That means more ad inventory, more competition and so better CPC rates - therefore the low value of dollar (for non-US bloggers) may be offset by the corresponding increase in advertising budget.
Duncan Riley

October 14th, 2007 at 9:47 pm

Nicolas
100% correct, I probably could have spent half a day with the list of winners and losers but I wanted to keep it to key concepts and companies.
Not_an_economist

October 14th, 2007 at 9:54 pm

Winner: US Startups getting bought by non-US companies.
Steve Ballmer

October 14th, 2007 at 9:57 pm

Just make sure you have offices everywhere!

http://fakesteveballmer.blogspot.com
Andrew

October 14th, 2007 at 9:58 pm

I don’t think we’ll see a decline in start ups. Maybe big venture capital backed start ups that piss money away on useless shit…but there’ll always be start ups launched by people who are willing to boostrap…and who are willing to make sacrifices to have their vision come to fruition.
whoopie

October 14th, 2007 at 10:09 pm

google and yahoo derive their core revenue base from the US. a declining dollar is definitely a bad for them, as advertizing is the first lever turned off in a downturn. they are also major energy consumers…that energy is getting more expensive every day.

you are going to see the near instantaneous removal of huge amounts of real-estate related ad buys impact both google and yahoo….probably yahoo more since the lean on display ads more, but it will hit everyone who takes revenue from ads.
Daniel Gibbons

October 14th, 2007 at 10:15 pm

Something missing from this post is that large companies that are potentially at risk from XR variations employ hedging strategies to protect against currency fluctuations.

As a Canadian I get extremely frustrated hearing other Canadians talk with glee about how cheap things are when they travel to the US, forgetting that almost all of our exports go to the US and are undoubtedly suffering.
james

October 14th, 2007 at 10:33 pm

Biggest losers:
Average American People.

We have been sheltered from major price increase because of illegal immigrants keeping the food supply cheap and Chinese import. We are losing the illegal immigrants and with the declining power of dollar things will suddenly get a lot more expensive for people. Of course the government creative measurement will not show any inflation, as they would argue the Chinese shirt that we use to buy for 5, not it’s 10 but it does a lot more than the old shirt and we get more pleasure out of it, and if you put that into account there is no inflation since the increase in the price reflect the additional benefit

This is what happens when the Media is controlled by a select group of people, there will be no mention of anything like these lest causes panic.

BTW, not sure what we produce anymore that anyone outside will buy because of cheaper prices.
What is going on, blog

October 14th, 2007 at 10:35 pm

The Dollar is great for Google’s non-U.S. business but I hope they make adjustments, perhaps in prices as the Dollar will turn around sooner or later. It’s way to undervalued now (good time to buy for the holiday season?)
Mike B

October 14th, 2007 at 10:36 pm

Google stock will fall if US revenue starts to decline, no question. Google is a momentum/growth play, so if growth turns negative in its primary market, watch out below.
Tim L. Walker

October 14th, 2007 at 10:39 pm

Big Losers: Anyone not living in the US, but the majority of their revenue comes from the US. 5 years ago, as a Canadian doing business on the web, when getting revenue from the US, for every $100US I received, that was almost $150 in Canadian dollars, now for the same $100, I get $98.
Anand Nalya

October 14th, 2007 at 10:41 pm

Indian IT giants like Infosys and TCS are taking the brunt of the rising Rupee against Dollar. There is about 12% appreciation in Rupee value against dollar in past year or two which means decline in revenues for these companies of the same order.
Vinod

October 14th, 2007 at 10:56 pm

Adsense publishers are losing on their earnings.
Duncan Riley

October 14th, 2007 at 10:57 pm

Tim (16)
tell me about it
Paul Montgomery

October 14th, 2007 at 11:01 pm

@Vinod: Amen brother.
Ben Bernanke

October 14th, 2007 at 11:01 pm

Thanks for the econ lesson Duncan, I don’t know what I would do without you.
Forsooth

October 14th, 2007 at 11:16 pm

The true severity of the dollar’s recent decline is being masked by a coordinated system of worldwide currency depreciation. Printing presses are working overtime everywhere, the dollar is just the currency most unable to conceive of a tomorrow. Since the Fed’s M3 data has been discontinued we must rely on indepedent research, but if you believe this guy’s numbers then we’re in for a bumpy ride:

http://www.shadowstats.com/cgi-bin/sgs/data
Alex Linhares

October 14th, 2007 at 11:53 pm

If the slide accelerates then a big crisis is in for everyone. China, India, Brazil and Arabia (the oil Arabia) has something like 2 Trillion dollars on their hands now. It´s the largest foreign aid program in history, in which, ironically, the poor sustain the rich.

I was at a conference with Rodrigo Rato two weeks ago, and, though nobody wants to talk about it, there´s this annoying elephant in the room, and when it moves, people just might panic.

Please put your seat in the upright position and fasten those seatbelts.
Alex Linhares

October 15th, 2007 at 12:00 am

Perhaps silicon valley will continue to abstain from the law of gravity. If it turns into a serious mess, entrepreneurs everywhere just might keep on flocking there. It´s already more cost-effective to open up shop there than in, say, Europe or Asia, Latin America or whatever–but that is only when you take into account ALL costs, red tape, property law, etc. That´s why everyone here at the Brazilian Jungles who actually develop something valuable flock for a US patent. If it becomes cheaper for foreigners to set up shop in the Valley, America might actually go south while the valley goes uphill.
The Business of Software

October 15th, 2007 at 12:07 am

Yes if it continues everyone will be outsourcing to the US.
Berlin

October 15th, 2007 at 12:30 am

Biggest winner is China.
Darren Stuart

October 15th, 2007 at 12:43 am

Duncan I think you need to remember that more of Microsoft’s business is offline than it is online so therefore I would wager they are making a lot more than google is with software sells.

Another big winner is ripoff adobe. Compare the prices between the US and the UK for photoshop. They have promised to fix it but nothing so far. Maybe someone like your self can do an article on the cost of tools from country to country and ask the companies why us Europeans have to pay more.

On a side note I am in San francisco at the end of this week so my British Pound is going to get me far
Chad

October 15th, 2007 at 12:43 am

Advertisers will increase product prices to afford higher cost of goods, a larger ad spend, google’s revenue will not decrease in nominal terms and no negative growth will occur. In general, it’s just inflation, it’s what the fed decided was best by cutting rates. Instead of letting the risk taking mortgage companies deal with their defaults, they decided everyone should pay for it through higher inflation.

The real loser is the U.S. workers who have to pay those higher prices, because everyone knows we won’t be getting a raise.
Chad

October 15th, 2007 at 12:45 am

Another point to make, stock prices are also nominal… they go up with inflation.
Clement

October 15th, 2007 at 1:12 am

For those in the know, for how long is the USD expected to continue declining?
bob

October 15th, 2007 at 1:12 am

Here are some facts:

Weak dollar is bad for the US startups because the Indian programmers now wanna charge more & many US startups can’t afford them.

Indian companies are hiring US programmers. This is actually happening NOW.
Isofarro

October 15th, 2007 at 1:42 am

Other winners are Apple, Adobe and Microsoft because they gouge UK consumers with far higher prices than US counterparts. For instance the Mac Mini is still ‘from £399′ in the UK (which translates to a US price of $799), but only $599 in the US (which translates into the more equitable £299). A healthy $200 profit for the same item. (Not to mention the additional shipping costs - made in China). The same goes for Adobe and Microsoft who both price items in the UK far higher than US. They gain every time the US dollar slips.
Alex Bromberg

October 15th, 2007 at 1:49 am

[Biggest losers:
Average American People...]
I absolutely agree with James.
Sebastian

October 15th, 2007 at 2:04 am

Don’t forget that the low Dollar makes the iPhone EXTREMELY cheap in Europe. The iPhone is cheaper for me than a new, unlocked Palm Treo 750.
This makes the iPhone price-competitive here and leads to a lot of people “importing” the iPhone from the US.
Nick Hodge

October 15th, 2007 at 2:22 am

Non-US startups attempting to export to the US, and getting paid in USD$ are obviously getting less. (which is the Adsense scenario for non-US, non-Euro zone advertisers)

This is just the free market working. We’ve just to lie back and let it all flow.
Togi

October 15th, 2007 at 2:45 am

As long as your making your bucks oversea, your a winner, and dont think that prices in Europe get adjusted to the cheap import dollar goods. Big price cartels for electronics and media/communication keep the prices stable and ridculously high. Think about it, iTunes USD 99 cent would be EUR 70 cents, but even the popular German MP3.de is selling average EUR 1.49 for one song, thats USD 2.11!!
Clement

October 15th, 2007 at 2:47 am

Could be off topic but still worthy knowing. You have attributed this post to Paul Montgomery as follows:

—————————————————————-
with thanks to Paul Montgomery for the post idea.
—————————————————————-

As new visitor here, I would like to find out if u pay any cash to people who offer you post ideas like Paul has done. Or is the link to Paul’s site enough compenstation for offering you his idea?
Clement

October 15th, 2007 at 2:49 am

Could be off topic but still worthy knowing. You have attributed this post to Paul Montgomery as follows:

—————————————————————-
with thanks to Paul Montgomery for the post idea.
—————————————————————-

As new visitor here, I would like to find out if u pay any cash to people who offer you post ideas like Paul has done. Or is the link to Paul’s site enough compenstation for offering you this idea?
Paul Montgomery

October 15th, 2007 at 3:50 am

Clement, I can assure you I was not paid for giving Duncan the idea for this post, and I did not ask for Duncan to include the link to my site. I’m a friend of his, and I badgered him on Twitter for weeks on end to write it simply because I wanted to see the story on TC.
Richard Corsale

October 15th, 2007 at 4:07 am

wow.. I was wondering why the Indian web designers wanted so much more than usual. I remember paying 300$ a month for a PHP programmer and $50 for a site template… that was nice.
Vit Fargas

October 15th, 2007 at 4:40 am

I would say, the big trade deficit is catching US. In last years US instead of producing goods and selling them abroad was just printing green dollars trading them for real goods.

The ship starts to sink and in fact currently the worst losers are countries who put work in their goods and now have hands full of dollars which nobody wants…

Of course for American people it will be worse, but they deserve it, cause last years they have lived on expense of others…

But the real problem for Americans is, that with enormous dollar capital abroad, if real panic starts, foreigners won’t go and change their dollars back to their currency (what some economists hope for - foreigners buy dollar at high price and then later will exchange them for lower and we’ll be winners) or wait for goods to be produced by America and buy them, but come directly to America buying THE America - their buildings, their land, everything so they can get rid of more and more (for them) worthless dollars…
John@ScribbleSheet

October 15th, 2007 at 5:18 am

Yep, Adsense users outside the US are pulling their hair out.
Rajeev

October 15th, 2007 at 5:58 am

I know Frd. even Rupee appreciated against dollar. Any guesses about next reserve currency and timing?
Voices

October 15th, 2007 at 6:22 am

RE: 16. Tim, I agree with you completed. To add insult to injury, the PayPal fees on top of the weak US dollar aren’t helping the situation.

Let us not forget that not eve 2 years ago, the situation was quite different for Canadians doing business in US dollars. Just look at your financial statements and you should have a line item called “Exchange Gain/Loss”. Earlier, this was a gain, now it’s a loss — it all evens out.
Chris

October 15th, 2007 at 6:24 am

Canadian companies worth more than a few thousand dollars have US Dollar accounts at Canadian banks. Unfortunately. So they lose too.

An account in Canadian dollar funds in the US would be unheard of, but here in Canada all banks off USD accounts for business customers. Lots of businesses up here have American dollars rotting in those accounts.

I am 100% positive that the US govt, reserve bank engineered this to stimulate the American economy out of a mini-depression after the high-risk loan plunge. They wanted to stimulate exports, and hacked the exchange rate. (because nothing else was working)

This didn’t work either, and they lost people tens of thousands of dollars.
Chris

October 15th, 2007 at 6:25 am

Sorry, typo, that should read:

“An account in Canadian dollar funds in the US would be unheard of, but here in Canada all banks offer USD accounts for business customers.”
Chris

October 15th, 2007 at 6:28 am

Dudes, I give you guys such good ideas in the forums, the least you can do is hire one of our guys to supe up your Wordpress blog, so it’s unique and scales with the large volume of users you have here.
Bira Rai

October 15th, 2007 at 6:43 am

here’s a summary of why the US dollar is on the decline

1. in order to fund the war, congress goes to the federal reserve and “borrows” 5 billion dollars

2. federal reserve starts up the printing presses and prints 5 billion dollars, US currency no longer backed by gold reserves

3. the federal reserve “lends” the 5 billion to the US government

4. US government goes out and pays everyone involved in the war

RESULT
over supply of US currency in the market
lowers purchasing power of US consumer
increase inflation, this is a hidden tax to consumers
pretty soon US greenback will be at parity with monopoly money

SOLUTION
federal reserve should stop printing money

BiraRai
Steve Ballmer

October 15th, 2007 at 7:53 am

I hate that graphic!
Never show burning money!

http://fakesteveballmer.blogspot.com
Gold

October 15th, 2007 at 8:33 am

US is the biggest consumer in the world and many industries in countries like China are based on US consumption.All paper currencies will be finally affected
The age old standard of Gold backed currencies was long abandoned .
Gold has now risen from $300 to $740.
US economy is in stalemate position.Raise the interest rates and there will be a big housing slump affecting consumer speding.
cut interest rates and US dollar will fall + inflation will rise.
Derrick

October 15th, 2007 at 8:33 am

16. Tim, totally agree. I blogged about this a few weeks ago since my wallet has been consistently getting short changed over the past year while the US dollar declined.

http://www.dgrigg.com/post.cfm.....ve-balance

Big losers: Canadian retailers who are importing goods from the US at par but charging considerably more than US retailers.
Nadir

October 15th, 2007 at 8:50 am

You forgot to include me in the Winners’ list I’m based in France and I love buying stuff on US sites, I get clothing for so cheap now!
Anand

October 15th, 2007 at 8:53 am

The IT companies in India are not the only losers, their employees too are. New recruits shall now be paid much less than before. In fact, there is also talk of the companies reducing their intakes..

You might say IT companies losing out and employees losing out are the same. But then, now I fall in the second category, and wonder where I will go for a job next year
Al Manc

October 15th, 2007 at 9:09 am

You are correct. Americans have long made fun of their counterpart trading buddies. It’s too bad - each is very much dependent on the other. However, resource-rich Canada is looking like the mightier partner in these times. Once they figure out how to [inexpensively] turn those oil sands into oil, the CDN economy [and dollar] will explode. A sad day for the US dollar - hedge yourself, buy gold or spread your currency risk around and sell your good ol’ greenbacks!
phenom

October 15th, 2007 at 9:38 am

Thanks for the incomplete information.

http://vidsonly.blogspot.com
Ian

October 15th, 2007 at 9:50 am

I find it amusing how all the armchair economists ans US bashers come out on posts like this. I work in investment management and this whole article and the comments are overly simplistic and ignorant.
Kango Traveler

October 15th, 2007 at 10:13 am

One of the big losers in this equation is Americans who wish to travel, but there are still a few counties, like Indonesia where the dollar is pegged to US currency, places like these are still very attractive to US travelers, personally Bali is a wonderful place to be.
BillyWarhol

October 15th, 2007 at 10:38 am

I was just talking about this to my Brother-in-Law from South Dakota who came up for Canadian Thanksgiving* I Laff at stoopid Canadians (myself included) who Think this is great for us* It sucks - we need to Sell as much of our Natural Resource crap to the USA as possible for the JOBS here! Not the drop in the Bucket we save going to Vegas to Party our Asses off for a lousy Weekend of Fun!! ;)) I do hope this means more Fat French Quebecois in their Speedos invading La Florida fer the Winter!!

Peace*
rxbbx

October 15th, 2007 at 10:57 am

Its just sad… US tries to stay alive with their rates and low $… This takes too long.

@Vit Fargas (45)
Well said.. “but they deserve it” nobody deserves a crisis but its just bad economics, bad politics.
Anif

October 15th, 2007 at 11:08 am

Chirs #45, you are correct, except the US Dollar Accounts in Canadian Banks does not exist for only Business Customers, it is available for personal accounts as well. I have one with CIBC, infact, I have had it for almost 5 yrs now. Luckily for me, before I cam over to the US in Jan i withdrew eevrything in there leaving only $1. Luckily that was a bloody smart move, or else I would have wept knowing how worthless my $US is in my Canadian Bank.

As per BillyWarhol #58 - I agree with you as well. A number of people I know are rejoicing over the little things like coming here to the US to shop with is nice and all. But the fact is, I think it will deeply hurt Canadians in the end, because we rely heavily on business with the US.
Andrew

October 15th, 2007 at 11:28 am

I feel they feds are lowering the USD so they will not owe as much money for this so called war. If my assumption is true this is pretty smart.
YM Ousley

October 15th, 2007 at 11:54 am

As a US citizen who spends a lot of time in Europe, it’s pretty painful to see how fast your money goes when spending in Euros or Pounds. People laugh when I say that I operate on the American peso, but pretty soon that’s what it will be worth.
CVOS man

October 15th, 2007 at 12:09 pm

@NicolasV yes outsourcing coding is quite popular, imagine if one day the dollar devalues so much that countries start outsourcing programming to the US like this one.
Mike

October 15th, 2007 at 12:44 pm

“Yahoo and Microsoft will benefit in terms of foreign revenue as well, although neither has the online presence (or marketshare) that Google does.”

According to Yahoo’s website: “As of December 2006, nearly 500 million unique users worldwide visit Yahoo! each month.”

That sounds like a whole lot of international exposure to me.
luca

October 15th, 2007 at 1:02 pm

New post idea ? Good points, but the idea is not new anyway:

http://www.lucafiligheddu.com/.....he-us.html
Antonio

October 15th, 2007 at 7:02 pm

US dollar declines, because the world is punishing USA for the Inside Job 9/11.
Rich

October 15th, 2007 at 9:32 pm

Ad 14 - the dollar will turn around like this?

http://finance.yahoo.com/chart.....=undefined
Pierre Col | UbicMedia

October 16th, 2007 at 1:37 am

Google is stealing money from its non-US customers and partners, especially European ones !

Google Adsense ads are paid by Google to affiliates in declining dollars, but Google Adwords keywords are paid by customers in climbing Euros : doing that, Google increases its revenues, lowers its expenses, then easily boosts is profits. The more the $ will continu to decline, the more Google profits will increase, it is as simple as that !

Will European customers/partners accept that for long ???