Dollar Defies Greenspan Fix

As every newspaper reader knows by now, the dollar hit an all-time low against the euro of $1.333 last week, its seventh record low set this month. It finished slightly better on Monday at $1.3278. It also climbed off a near five-year low against the yen of 102.6 last week to 102.86 on Monday.

Monday's action was much more of a short-duration uptick amid a fierce bear market than an all-out reversal of trend. Analysts and traders generally expect a resumption of last week's dollar selloff.

At Evergreen Investments, Chief Investment Officer Chris Conkey is worried that the selling could get out of control.

"What do you say about the dollar's decline? It's not a bad thing until it is," he asks. "Now it looks like it's becoming significant and a focus of investors and it is" becoming a bad thing.

Evergreen, with about $250 billion under management, is running its international portfolios that hold stocks denominated in other currencies without any hedging back into dollars. In domestic large-cap funds, Evergreen is looking for multinational export-oriented firms that are well placed to benefit from the dollar's slide.

"A declining currency in and of itself is not a bad thing when inflation is relatively low and manufacturing jobs are going away," Conkey says. "But it's like alcohol -- a little bit may be good, but how do you stop?"

A falling dollar doesn't have to doom the stock market, although that was part of the lead-in to the 1987 crash. After all, the dollar has been falling for more than two years, and stocks are far in the green during that period.

At the very least, a weaker dollar favors exporters such as technology and machinery manufacturers, respective examples being Qualcomm (QCOM) and Deere (DE). Raw materials producers such as Phelps Dodge(PD) also get a boost as dollar-denominated commodities rise in price to offset the decline in the currency.