The euro, the dollar and the “Flippo Factor”

I will never understand international currency exchange rates. Hell, even Alan Greenspan says he doesn’t understand why the world economy has suddenly gone down the drain. How are we mere mortals supposed to grasp even the basics of economics, much less the finer points, if Greenspan is befuddled?

A one-euro coin (Münze)

The one-euro coin (Münze) makes you wonder why Americans can’t use a dollar coin.

But I do know one thing for sure about the exchange rate between the U.S. dollar and the euro: If I go to Europe, the euro will climb and the dollar will fall. When I return to the good ol’ USA, the dollar will come back. I call it (modestly) the Flippo Factor.

As some of you know, in 2007 I went to Berlin to live for about 10 months. (See my old Tapetenwechsel blog.) When I arrived in the German capital in September 2007, the dollar rate stood at about $1.40 per euro. That was bad enough, but the euro then continued its upward trend. By November the U.S. dollar had reached an all-time low (up until then) of $1.4487 to a euro! When 2008 arrived, and after I had enjoyed my wife’s visit for Christmas and the New Year, the euro just kept climbing like a damn rocket! In an almost steady climb, the euro went on to hit its actual all-time record versus the dollar. On April 22, 2008 it took $1.60 to buy one euro! It was depressing and painful to go to the ATM (Geldautomat) and see so few euros come out compared to the dollar amount. By the time I was getting ready to fly back to Nevada in July 2008, the euro had “dropped” a little, but it was still hovering around $1.55-1.56.

Well, after a short driving tour of Germany with my wife, we got on a plane to fly back on July 22, 2008. (Originally we were going to be on a cruise in July, but we had cancelled our Baltic cruise aboard the Queen Mary II partly because of the horrible exchange rate.) At the beginning of August, after we were back in Nevada, the euro started to fall. By September 1, you could buy one euro for $1.47. As I write this (Oct. 23, 2008), the euro has fallen to $1.2852, getting back to the “glory days” of a $1.30 euro. But I don’t think it will end there. Now that I’m back in my homeland, the dollar is sure to strengthen even more. Who knows, we may see the euro return to where it began: at around one-to-one!

Now you may say that the dollar has strengthened not because of my travels, but because of the world economic crisis. Right, the U.S. economy is headed for an all-time low and recession, so the dollar gets stronger. What’s wrong with this picture? Some will say that the euro zone will be worse off than the U.S. in all this misery, and that’s why the dollar is up. But I know the real reason: I’m not in Europe trying to survive on dollars any more. It’s that simple. It’s happened many times before. The Flippo Factor strikes again! (Hey, at least it beats another blogger’s claim that the euro is worth more than the dollar because a 20-euro note is bigger than a $20 bill.)

Let’s look at the record. In September 2007, when I arrive in Berlin, the dollar/euro exchange rate is $1.40 per euro. By April 22, 2008, it takes a record $1.60 to buy a euro. Just before I leave, in July 2008, the rate is still about $1.58. I get on a U.S.-bound plane in Frankfurt and the euro begins to fall. By August 8, a euro can be had for only $1.50. In September the euro makes a brief recovery to about $1.48, but then falls off a cliff. On October 24 the euro has plunged to $1.26. I rest my case.

So, if you’re into foreign exchange trading, I’ve got a tip for you. Just follow my travel plans. If I’m headed to Europe, it’s time to buy euros. Keep track of when I return, so you’ll know when to start betting on the dollar again.

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