Predicting the future of international finance can be a
fool's errand. Fluctuations in a small aspect of a small market can
ripple in untold ways, changing the environment all the time, like the
proverbial butterfly responsible for all of those hurricanes.
Unfortunately, shrugging in the face of the unknown is really
uncomfortable when it comes to finances. When we need to know how it will
affect us, we go to financial advisors.
What
about when we don't have any specific investments in either area? How
might it affect us then? Below are some of the people likely to be
affected by the economic news of China's struggles last week. Some it
will hurt, some it will help and some we'll have to wait and see.
You
might be hurt if:
Your
portfolio is heavy on retail brands. In
the last decade or so, American demand for retail goods slowed at the same time
Chinese demand grew, so many of our corporations recorded sales growth that was
largely or exclusively based on Chinese consumers. Yum! Brands, Intel,
McDonald's and Starbucks all rely on Chinese consumers for between 15 and 20
percent of their revenue, and the Chinese middle class just got hit with
back-to-back market crashes. We won't really know which companies were hit
the worst until sales figures and quarterly reports start coming out, but you
should identify which stocks you own that are heavily invested in China and see
what they plan to do to keep afloat.
Your
income is directly related to manufacturing. Banks around the world are stockpiling dollars because
American currency seems much safer than a Euro that's dealing with a crisis in
Greece or any Asian currency that is inextricably tied to China. As a
result, the dollar has increased in value about 3% in the past month.
That
sounds great, but a strong dollar makes exporting more difficult and makes
imports cheaper, both of which make it harder for American manufacturing firms
to compete with overseas factories. The Obama administration, like the
Bush administration before it, has repeatedly pushed China to strengthen its
currency for this reason, but has little to show for it. Some financial
analysts suggested the Asian free trade agreement signed last month was meant
to prevent exactly this kind of situation: Chinese market insecurities
resulting in problems for American manufacturing.
You
might be helped if:
You
own a business. Whether your
company is big or small, a strong dollar gives you a leg up right now.
Obviously, you can order stock from overseas, knowing it will cost less
and pocket the profit. It might be time to think bigger, though. If
your dollar is worth 3% more than it was a month ago, that means any loan you
take out will come at a discount. If you wanted to buy a $10,000 piece of
equipment from China but scoffed at the interest rate, you can cut it
considerably right now.
You
own a home. It may not be
obvious at first, but everything in your home goes through China. Your
car had parts manufactured or assembled there, your clothes, your furniture ...
everything. You'll feel the effects of Chinese firms trying to get sales
every time you go to the store and possibly until Black Friday.
But you
could also get a great deal on home fixtures and appliances very soon.
Chinese factories need the cash, and with their domestic housing bubble
bursting, you're the only one left to buy that amazing new washer/dryer.
What if you moved up your remodel to this fall? You could be
looking at glorious home goods at ridiculous prices.
Talk to Pen Air about our small
business, automobile and personal loans. Let's see if we can help you
capitalize on this opportunity. If you're not sure how to make the most
out of this bubble, or if you're not sure your financial investments are safe,
call one of our investment specialists at 850.505.3200 ext 8332.
Sources:
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