Revenge of the Dollar

06/18/2009 2:00 pm EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

A rare show of popular dissent in Iran did little to relax the grip of hardliners with nuclear ambitions. North Korea, where dissent is a form of suicide, continued its blackmail campaign, threatening everything short of exporting nukes to Al Qaeda.

Investors hardly needed more excuses to sell shares, after a relentless three-month rise that outpaced improvement in the world economy. They unloaded miners, bankers, and assorted manufacturers in favor of bonds and the recently derided dollar, which suddenly didn't look quite so bad. The buck also got a temporary reprieve from the G8, as finance ministers discussed stimulus-cutting contingencies for when their economies recover. This was meant to make them seem the responsible sorts, amid worries that they're printing and spending too much money.

With friends like that, the greenback hardly needs more enemies. Currency markets have become so sensitive to its plight that even contradictory Russian comments have moved the needle. There was no punch line to the joke that is Russia's track record of devaluations, defaults, and slavish dependence on the dollar as a store of value.

Instead, Russia was getting good mileage ahead of its summit with leaders from China, India and Brazil—a political grouping that owes its existence to Goldman Sachs (NYSE: GS). The BRICs have stacked nice equity gains this year. The Claymore/BNY BRIC ETF (NYSE: EEB) is still up 60% from its March lows, albeit down 10% from last week's high.

Russia is the midget of this circus act, at least as measured by population and economic growth. Its (quickly shrinking) gross domestic product is barely one-third the size of China's and not much bigger than California's. The underdeveloped Russian economy lives and dies by the price of a barrel of crude, lacking Brazil's entrepreneurial spirit, China's manufacturing base, or India's flair with outsourcing. But even one-trick ponies get to kick the dollar while it's down.

In the event, BRIC leaders resisted the urge, choosing financial self-interest over grandstanding. The dollar is hardly the only plentiful currency around. The Bank of Japan has just pledged to keep buying corporate debt despite a less downbeat economic outlook. Even oil-rich Norway is still cutting interest rates. And no region, not even the BRICs, has been spared during the past week's market correction.

Europe's struggles, despite a recent smattering of less awful news, won't have come as a surprise to readers who took to heart Gordon Pape's recent warning. Pape saw few catalysts for European shares during a recent tour of France, and plenty of signs that the rally was in danger of rolling over.

If nothing else, the poor Old World ought to appeal to contrarians. Everyone loves the BRICs, Asia, and Latin America. Hardly anyone who doesn't have to cares to share Europe's bout with the Japanese disease.

Whichever way the markets head over the next week or the next year, it's hard to argue with yields approaching 10% from businesses enjoying government backing. That's the thread uniting this week's picks. Roger Conrad warms to a Canadian hydro and wind energy generator poised to benefit from built-in inflation-indexed increases on its electricity contracts. Nick Lanyi's high on a Mexican airport operator that's also insulated from competition and less susceptible to short-term fluctuations in global growth.

No matter what the future holds, big yields on secure income streams shouldn't remain on sale for too long.

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