Oil, Vacations and the U.S. Dollar
I just returned from a speaking invitation at the Salon de l'Analyse Technique & Graphique des Marches Financiers (Conference on Technical Analysis and Charting of Financial Markets) in Paris. The main topic of conversation was the foreign exchange market (FOREX). The Europeans are dedicated to following daily currency exchange rates. They were gracious and seemed very interested in the opinions of this American as they pertain to the benefits of using the FOREX to diversify the personal portfolio while making a few bucks as an investment opportunity. But while in France, I also had other thoughts about how the currency market, especially the dollar, affects American pocketbooks and wallets.
First, the price of oil is getting ridiculous and some believe the major reason behind the increase in oil prices is tied to the depreciation of the U.S. dollar and concern over the possibility of its future weakness. The price of oil for consumers around the world, specifically at the pump, is increasing at an alarming rate, as I'm sure you've noticed. In Europe, the high price of oil is also affecting the share price of European auto giants. Recently, a warning from General Motors, the world's biggest carmaker, the price of oil and a decline in Western European auto sales in February, put pressure on the European auto sector. Volkswagen, Europe's biggest carmaker, slid 2.68 percent to 35.21 euros and German-US rival DaimlerChrysler shed 2.87 percent at 33.87 in Frankfurt trade. In Paris, Renault lost 2.33 percent at 67.00 euros and Peugeot dropped 2.0 percent to 48.60.
The International Energy Agency in Paris, which tracks oil demand for industrialized nations, offered a more distinct explanation: Oil consumption has caught up with the capacity to extract and refine oil into gasoline. The agency projects rising demand for oil across the globe in the second half of 2005. The U.S. remains the biggest oil consumer, using 21 million barrels a day, but the International Energy Agency warned that focusing on the U.S. misses the global picture. It showed that China used almost 5 million barrels a day last year and by 2022 could be consuming as much as the U.S. does today. India, the world's second most populous nation, also has a fast-growing appetite for oil.
We enjoyed our time in France and so will many Americans this year. With vacation season approaching, the value of our dollar could affect the tone of the traditional vacation months ahead. It's been reported that Americans planning a European vacation this year are preparing themselves for high prices while trying to determine how they can stretch the value of their dollar while on holiday. When the euro was introduced back in 2002, one euro was valued at $.88. Today, the euro is considerably higher. At this writing, one euro is almost equal to $1.33. The British pound is also causing potential visitors figuring their money.
Those who follow such statistics say Americans aren't rejecting European vacations and are expected to travel across the Atlantic in droves this year. Experts believe the crowds of American tourists on the European continent could be the biggest since 9/11. The European Travel Commission is anticipating more than 12 million Americans this year. To stretch the value of every dollar many U.S. tourists are forgoing the four-star hotel for less expensive hostels. Others save money by purchasing one meal a day from a street vendor versus eating in a restaurant. Many use mass transit rather than using a taxi. European cruises have also become popular since room and meals are included in the price. One thing is for sure, the cost of the luxury items we enjoy will no doubt remain at current levels or increase in price. It is a way of life that we need to become accustomed to now and into the future.
The French and the U.S. have had recent political divisions but one thing we have in common is the desire to improve the quality of our personal lives. While U.S. investors try to enhance our investments, Europeans are working to accomplish the same thing. The more I learned about the French the more I realized that we have more in common than we have differences.
Originally published in the Outspoken e-newsletter.