People predicted dire consequences for the dollar during the height of the recession, most of which never materialized. Then again, history has taught us several times not to underestimate the incredible strength and resilience of the US economy.  

 

 
Over the past two years the €/$ rate has varied from $1.24 - $1.59, with an average of $1.41. It is now $1.27, more or less the same as it was in Oct-Nov 2009 and in Feb-March 2010.  
 
Despite the unpredictability of all this,  our feeling is that the euro will continue to weaken against the dollar for some time. It´s difficult to think about how this can be used to your advantage in the abstract so let´s use a Mosaic property costing $75,000, which is priced 65% lower than its peak.
 
Three months ago it would have cost you €55,000 to purchase $75,000. Now it would cost €59,000. It´s tempting to think that you´ve missed the boat as the price has “gone up” by €4,000 and/or that you´re not getting a 65% discount anymore.  Both are misleading.
 
Look at it the other way. You pay the €59,000 and in a few months time the US/EU exchange rate moves from $1.27 to $1.17 (very possible). If you convert your $75,000 back to euro you´ll get €64,000. Have you lost €4000 or gained €5000?
 
Put your money to work
 
There´s also the rental income you can earn (good luck getting 10% in an EU country from a €60,000 property), the capital appreciation potential (prices have still plenty of room to fall in most EU countries) and above all, the fact that  your money is working  hard in an appreciating asset in a recovering economy rather than languishing in a bank in a slow economy generating 1-2% interest.  Isn´t it better to read positive news about the US economy when you have assets there?
 
Florida property provides a lower cost asset, at a higher yield and significantly better capital appreciation potential than anything comparable in Europe.
 
More importantly, it is vital that investors start thinking about diversifying away from euro assets and into income generating assets in other currencies. You do not want to have all your money in euros when the US market is thriving and the euro currency outlook is weak and uncertain due to rogue member states.

 

Kind Regards

 

Colin Murphy

Torcana.com

At Torcana we always do our best to bring a genuinely open and honest assessment of the investment environment and we position our product range accordingly.  In that spirit, I´d like to briefly address an elephant in the corner that most real estate companies would rather avoid speaking about - the affect the current turmoil in Greece could have on the rest of the EU and on our currency, the euro. 

Greece is a relatively small and peripheral EU economy that nonetheless faces an economic and political crisis that may have severe repercussions for the EU. Lots of countries have large debts and deficits, but none are as poorly placed as Greece to dig their way out of it. A lack of export prowess, entrenched corruption and tax evasion, an inability to devalue currency and a very hostile public response to necessary cuts in wages and services have all combined to bring this country the brink of default. 

Where this will end and how it will affect the Euro exchange rate with other major currencies is anybody’s guess. The worst case scenarios are too difficult to imagine, and the best case scenario is that money being sent from the EU and IMF buys enough time to reschedule Greek debt and proceed with orderly and overdue structural reforms. Several other EU countries (especially Portugal & Spain) also need to convince the markets that they have the ability and determination to implement similar reforms. 

 

Kind Regards

 

Colin Murphy

Torcana.com