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What is a currency devaluation and why is it hurting stocks,

Complicated stuff, huh? Well, these things are never as complicated as they sound, and the same goes for China's currency devaluation. Before we break down how that's impacting your portfolio, let's go over what exactly a currency devaluation is. It's when a country pegs or influences its currency to make it lose value when compared with other currencies. So why do you U.S. investors care? That's what China is doing, not the U.S. There are two reasons. First off, a cheaper Yuan makes it cheaper for global companies to buy China's manufactured goods then to buy American goods. Secondly, China's currency devaluation signals the trade war is nowhere near over. Before we get into detail, how about a little life analogy first? Imagine you're going to a party, where you have to bring your own beer and bring this and bring that, and by the end of all these requests you say, you know what?

I'm turned off. I don't need to go. I'll just go hang out with this other friend. The drinks and the gifts and all this other stuff. It's like currency at the party. You have to own the currency to be at the party. Well, what if there's a cheaper currency or none at all for hanging out with that other friend? You'd probably do that. Now you're ready for part one of two of the real analysis. Let's go. If a European company can buy a particular product from the U.S. or China, it could be cheaper to buy from China. The European company has to buy the Yuan in order to buy the Chinese product and it would have to buy the dollar to buy the American product. If the Chinese Yuan has dropped in value a lot, the European buyer may opt to buy the Chinese product rather than the American product, which hurts the American company.

By the way, it's now cheaper for American companies to buy Chinese goods, but that's a separate story. Don't worry. The second part is much easier to understand. The currency devaluation signals that trade war is nowhere near over. President Trump is threatening more tariffs on Chinese goods. The Chinese could cave to Trump or they could punch back. China's decision to devalue the Yuan is a punch back, which signals to investors that the trade war isn't going anywhere anytime soon. That's why stocks sold off. Hey, now you know why you should pay attention to currencies before talking to your advisor. Fancy.

There's a trade war and the Yuan was devalued and U.S. stocks are falling. 

 
Complicated stuff, huh?
 
Well, these things are never as complicated as they sound, and the same goes for China's currency devaluation.
 
Before we break down how that's impacting your portfolio, let's go over what exactly a currency devaluation is.
 
It's when China pegs, or influences, its currency to make it lose value when compared with other currencies.
 
So, why do U.S. investors care? That's what China's doing, not the U.S.
 
There are two reasons. First off, a cheaper Yuan makes it cheaper for global companies to buy China's manufactured goods than to buy American goods. Secondly, China's currency devaluation signals the trade war is nowhere near over.
 
Before we get into detail, how about a little life analogy first?
 
Imagine you're going to a party where you have to bring your own beer and bring this and bring that, and by the end of all these requests, you say 'you know what? I'm turned off. I don't need to go. I'll just go hang out with this other friend.'
 
The drinks and the gifts and all this other stuff is like currency at the party. You have to own the currency to be at the party. Well, what if there's a cheaper currency - or none at all - for hanging out with the other friend? You'd probably do that.
 
Now to see what the rest of the nitty-gritty details are -- which you're ready for -- watch the video above.

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