Over the weekend, over 100,000 protesters marched through the streets of Dublin. They were protesting the international bailout and the proposed four year austerity plan announced. After 12 years of austerity, the last thing these folks want to hear is more cuts are needed.
You might be asking yourself – “Why does ANY of this matter to my 401k at work?”
A great deal of the gains seen lately in your 401k at work or your investment account have likely come from International investments. There are two main reasons behind this:
First, these economies in emerging areas have rebounded faster than the US.
The second reason is because the dollar has been sliding steadily.
And another round of quantitative easing by the Fed, along with really high unemployment and a snails-paced recovery will keep the dollar weak for a while.
However, as the EU (European Union) and the IMF work to bail out Ireland (and possibly Portugal, Italy and Spain behind Ireland)…the Euro sinks.
And when the Euro sinks:
The price of Gold often rises.
The price of Oil often rises.
And the dollar rises.
So, even though we have our own set of problems here in the USA, the dollar rises. Even temporarily.
And as the dollar rises, it hurts the value of all these international investments. Which is where a lot of the gains have been registered lately in your 401k at work and your investment accounts.
There is much more to the story of the Euro and why the EU may ultimately come apart at the seams. But that’s for another day. As the dollar strengthens due to unrest and the possibility that Spain, Portugal and Italy may also need bailouts, just know why some international investments may give back some of the gains seen recently.