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-Caveat Lector-
05:52PM ET Sunday, November 4, 2007
Supermodel joins hedge fund managers in dumping dollars
By Bo Nielsen and Adriana Brasileiro
Bloomberg News Service
Monday, November 5, 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aCs.keWwNdiY&refer=home
Gisele Bundchen wants to remain the world's richest model and is insisting that
she be paid in almost any currency but the U.S. dollar.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian
supermodel, who Forbes magazine says earns more than anyone in her industry, is
at the top of a growing list of rich people who have concluded that the
currency can only depreciate because Americans, led by President George W.
Bush, are living beyond their means.
Even after the dollar lost 34 percent since 2001, the biggest investors and
most accurate forecasters say it will weaken further as home sales fall and the
Federal Reserve cuts interest rates. The dollar plummeted to its lowest ever
last week against the euro, Canadian dollar, Chinese yuan, and the cheapest in
26 years against the British pound.
"We've told all our clients that if you had only one idea, one investment, it
would be to buy an investment in a non-dollar currency," said Gross, the chief
investment officer of Pacific Investment Management Co. in Newport Beach,
California, and manager of the world's biggest bond fund. "That should be on
top of the list," said Gross, whose firm is a unit of Munich-based insurer
Allianz SE.
The dollar fell 0.8 percent last week to $1.4505, the weakest since the euro
started trading in 1999. It lost 2.8 percent against the Canadian dollar to
93.51 cents and 1.8 percent versus the pound to $2.09. The Fed's U.S. Trade
Weighted Major Currency Dollar index tumbled to 76.3, from 112.89 in January
2004.
...Bundchen's Demands
BNP Paribas chief currency strategist Hans-Guenter Redeker, the most accurate
foreign-exchange forecaster last quarter in a Bloomberg survey, said the dollar
may drop to $1.50 per euro by year-end. The median estimate of 44 strategists
surveyed by Bloomberg is for the currency to end the year at $1.43. Among those
surveyed last week, the forecast ranges from $1.42 to $1.50.
When Bundchen, 27, signed a contract in August to represent Pantene hair
products for Cincinnati-based Procter & Gamble Co., she demanded payment in
euros, according to Veja, Brazil's biggest weekly magazine. She'll also get
euros for the deal she reached last October with Dolce & Gabbana SpA in Milan
to promote the Italian designer's new fragrance, The One, Veja reported.
Bundchen earned $33 million in the year through June, Forbes reported in July.
"Contracts starting now are more attractive in euros because we don't know what
will happen to the dollar," Patricia Bundchen, the model's twin sister and
manager in Brazil, said in a telephone interview in September from Sao Paulo.
She declined to discuss details of the arrangements last week, as did Anne
Nelson, Bundchen's agent in New York at IMG Models.
...Dollar Support
Procter & Gamble's Sao Paulo-based external relations director for Brazil,
Andre Quadra, said he couldn't give details of the Pantene contract because of
a confidentiality agreement.
Analysts in a Bloomberg survey expect the dollar to strengthen in coming months
as stronger-than-forecast reports suggest U.S. consumers will keep the economy
out of recession. Payrolls grew by 166,000 in October, double the median
forecast of economists in a Bloomberg survey.
The dollar will rise to $1.43 per euro this year and $1.35 by the end of 2008,
according to the median estimate in the survey.
"So far the data has shown the U.S. economy may not be slowing to the extent
the majority of the market had expected," said Omer Esiner, an analyst at
currency-trading company Ruesch International Inc. in Washington who expects
the U.S. currency to strengthen to as much as $1.38 per euro. "That could
temper policy easing down the road and lend support for the dollar."
...'Moving to Asia'
Buffett, whom Forbes in April ranked as the world's third-richest person behind
Bill Gates and Carlos Slim, told reporters in South Korea last month that he is
bearish on the U.S. currency.
"We still are negative on the dollar relative to most major currencies, so we
bought stocks in companies that earn their money in other currencies," Buffett
said Oct. 25. Buffett, 77, is chairman of Omaha, Nebraska-based Berkshire
Hathaway Inc.
Jim Rogers, a former partner of investor George Soros, said last month he's
selling his house and all his possessions in the U.S. currency to buy China's
yuan.
"The dollar is collapsing," Rogers said last week in an interview. 'I'm moving
to Asia because moving to Asia now is like moving to New York in 1907 or London
in 1807. It's the wave of the future."
...Better Returns
The dollar is falling as investors seek better returns outside the U.S.
Developing Asian nations including China and India will grow 9.8 percent this
year, compared with 1.9 percent for the U.S., the International Monetary Fund
said last month.
China, India, and Russia accounted for half the global expansion over the past
year, and the euro region will expand 2.5 percent in 2007, outpacing the U.S.
for the first time since 2001, the Washington-based IMF estimates.
"The world has learned to live with a weak dollar," said Jay Bryson, a former
Fed analyst who is now a global economist in Charlotte, North Carolina, at
Wachovia Corp., the fourth-largest U.S. bank. "It's not worried. it doesn't
rely on the U.S. as much as it once did."
Bryson forecasts the dollar will weaken to $1.50 per euro by the end of June.
The U.S. currency dropped in the past two months as the Fed cut its target rate
for overnight loans between banks twice to keep a decline in home sales from
starting a recession. The rate was reduced by three quarters of a percentage
point to 4.5 percent, including a quarter-point last week. The National
Association of Realtors trade group in Washington said on Oct. 10 that existing
home sales may fall 11 percent this year.
...Housing Recession
Lower rates have made yields on U.S. debt less attractive. At 3.36 percent,
U.S. two-year Treasuries yield 0.26 percentage point less than German
government bonds of similar maturity. The last time Treasuries yielded less
than bunds was 2004.
The weaker currency has cushioned the U.S. economy during the worst housing
recession in 16 years. Gross domestic product grew at an annual rate of 3.9
percent in the third quarter, the most in more than a year, the Commerce
Department said Oct. 31 in Washington.
The five-year, 67 percent drop against the Canadian dollar has made it cheaper
for fans from Toronto to drive the 110 miles (177 kilometers) to Orchard Park,
New York, to watch the Buffalo Bills play football.
...Canada Day
Canadians account for 11 percent of the team's season tickets this year, up
from 6.5 percent in 2005, according to Scott Berchtold, the Bills' vice
president of communications. At yesterday's annual Canada Day game, a record 23
percent of the sellout crowd of 73,967 fans were from Canada, he estimated.
"When the Canadian dollar was down around 65 cents, we didn't get anybody,"
Ralph Wilson Jr., the team's owner, said in an interview. "When the dollar
fell, we starting getting some people." The Canadian dollar bought 61.76 U.S.
cents in 2002.
The dollar's drop also makes American goods cheaper abroad. U.S. exports were a
record $138.2 billion in August, government data show. Net exports added 0.93
percentage point to U.S. gross domestic product last quarter, offsetting a 1.05
percentage point drag from housing, government data show.
"As long as the dollar's decline doesn't trigger inflation, it's a good thing,
helping the U.S. economy to stay out of recession," said Robert Mundell, a
professor at Columbia University in New York who won the Nobel Prize for
economics in 1999.
...Wealthy Clients
The Commerce Department's price index for personal consumption expenditures
excluding food and energy rose 1.8 percent in September from a year earlier,
the same as in August. The Fed forecasts the index will increase 1.75 percent
to 2 percent next year.
Wealthy clients at San Francisco-based Union Bank of California have doubled
their deposits in foreign currencies to $60 million the past two months as a
hedge against a decline, said Bradley Shairson, head of currency and
derivatives at the bank.
U.S. investors bought $198 billion in foreign securities this year through
August, 72 percent more than in the same period last year, Treasury Department
data show.
That's the same strategy as sovereign wealth funds run by the largest exporters
and oil producers, including China, Singapore and Qatar, said Stephen Jen, head
of currency research at New York-based Morgan Stanley.
The funds may grow to $17.5 trillion by 2017 from $2.5 trillion now and shift
more than $500 billion out of the dollar in the next three years in search of
better returns, he said.
"We're all thinking about diversifying out of the dollar," said Jen, who is
based in London. "It's a very logical thing."
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