|Tanking US dollar|
Time to raise prices?
As a non US company selling mainly in the US market I've seen a drop in income of over 20% in the last year and a half because of the change in exchange rate between the Canadian and US dollars. I've held the line until now on pricing by automating a lot of my operation to get rid of time eaters by using email auto responders, very specialized forms, etc. I think I'm finally going to have to raise my prices to reflect this new reality, but I'm a little nervous about it, anyone else feeling this pinch who can offer some advice?
I have a similar issue. I am planning to hedge in the futures market. If you know approximately how much revenue you expect to generate lock in the exchange rate now for that amount. There are online currency exchange houses that will allow you to do this. Sticky me if you want a name. You will need 10% down if you are going to buy a forward. Also, don't expose yourself too much. If you buy $100,000 worth of US dollars and only sell $50,000 worth of merchandise, you are speculating on the US dollar to the tune of $50,000 large ones. Personally, I think the US dollar is going down like a lead zeppelin, but I don't make the market.
This was one of the primary factors in why we sold our e-commerce side of the business. We just couldn't continue to absorb tightened margins in a price sensitive space.
Before we took this decision, we tried to outsource all product fulfillment south of the border but felt strongly that this would impact our ability to service our customers. We started when the CAD was at 62 cents, sold when it was 76 cents. 85 cents is fast approaching.
Hopefully your product has enough wiggle room as far as price is concerned that will allow you to raise pricing without impacting volume. I feel for you mate, its a tough problem to deal with as the trend seems to be that the US is comfortable with a weak dollar so I would expect margins to be squeezed futher as the CAD makes gains.
Hav you tried IGindex and spread betting sites for currency management?
Its a lot cheaper than futures trading and just as managable.
Buying forward is a good approach, but comes with costs and risk. Another method to reduce the impact of exchange rates is to move some of your expenses to the foreign currency (USD).
If you are selling in USD and get 100, then convert to CAD and only get 80 CAD (just a guess, I don't have the rate handy) then spending that 80 CAD on expenses to buy your product wholesale etc, then 100% of your revenue (the $100) is exposed to the currency exchange. If on the other hand, you buy your product in USD (lets say $50 of the $100 is product cost), then those dollars are not even affected by the exchange.
The more costs you can move to USD, the less you are exposed to the rate. If you initially receive you money in a US account, then it will be simple to shop US and use those funds.
My business is also suffering from this. I have considered opening a US bank account to keep our reserves for when the dollar is strong again. Or more realistic, put them in low-risk mutual funds and when the day comes, sell everything and exchange to local currency. I could do this because we have a big cash reserve.
But this begs the question: will the US dollar grow strong again and if so, when? Any economics wizzes here who could offer some advice?
|Personally, I think the US dollar is going down like a lead zeppelin |
If you want to lock in your US dollar profits I would highly recommend converting them to tangible assets or something backed by tangible assets. E-gold etc would be a good start. Personally nothing feels better than a little of the "yellow dog" buried in the "back 40". Seriously, the US dollar is never coming back. With the election of "W" the debasement of US currency will only be accelerated. So to summarize: Guns, Gold and Oil. Also, dont' buy other currencies like the Euro. The ECB is just itching to start their own debasement schemes.
I could go on about the nefarious schemes of Central Bankers, but suffice to say they do not have our interests at heart. America is in debt up to its' eyballs in all three levels: Private, Corporate and Public. The only way to wiggle out of this jam is to make all that debt less onerous by debasing the currency. So also don't look for too many more rate hikes.
Just to finish off my previous thoughts: The bull market in financial assets is over and that most likely means common stocks, esp US stocks. On the other hand stocks are probably better than straight cash, as at least a partial hedge against a falling currency. Stock market will also protect in times of hyperinflation which is my prediction for the future. We may also see a short-lived deflationary blowout if things line up wrong.
Nevetheless, US dollar is nothing but an IOU from Uncle Sam and the world is starting to realize America might not be able to pay us all back.
|will the US dollar grow strong again and if so, when? |
I seem to recall an exchange rate of about £1 = $2.40 back in 1981, if that happens again US exports will surge and clear the deficit.
Many economist are predicting a 1.35 to 1.40 dollar to Euro in 3-6 months, but then again, they were predicting a 1.40 earlier this spring/summer. I think the worst it might get by the end of this year is 1.50 to 1.55.
I like tangible investments myself and I am sinking it all into Krugerands. Approx. a troy ounce of gold and legal currency to boot.
There does seem to be a lot of news coverage on both national debt, deficit and the sinking dollar - which might create a more public outcry in the US. The Bush admin will feel the pressure when the T Bill interest rates have to move up. Right now, they have no incentive to stop the dollar's slide as the retail lobbyists (exporters) have got Bush dancing the way they want him to.
Although there's a slide in the dollar and the deficit is awful, one thing to keep in mind is the US economy is doing well right now. It's the government that's in trouble, not business - which was more the case in 1929.
Just some thoughts. Take it or leave it.
>I like tangible investments myself and I am sinking it all into Krugerands.
As a previous SA resident I wish you luck eith this strategy!
The USD currently sucks! If you can switch fast, then I would do so.
I'm stuck for a reasonable peoriod with USD funds. Damn it hurts!
Over the longhaul it is what I chose, for right or for wrong!
The USD will bouce back, it's failing will cost a lot of US money.......but probably not a vote!
Amazing how the USD can turn sooooo quick. I mean this is within a year or so.
I started a discusion in Foo about the possiblity of inflation as a result of the high debts, rising commodites prices (steel, paper and oil) and dropping dollar but very few seem to care. So in my opinion the dollar is only one of the macro-economic issues that we face now and the near future. Critical issues for those of us doing cross-border ecommerce.