Jeremy Siegel says the weak dollar is good for stocks. Except if gets weaker. Or something like that

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In the new Time Asia, Wharton School prof and market guru Jeremy Siegel has a mostly optimistic take on the weak dollar and U.S. stocks (to be contrasted with the more sour one that I posted Thursday):

The weak dollar … makes U.S. asset prices attractive to foreign investors. U.S. interest rates are higher than those in Continental Europe and are much higher than Japanese rates. Similarly, U.S. stocks look better by comparison. Measured in euros or pounds, the S&P 500 index is up less than 50% from its October 2002 lows, while European markets have more than doubled. Plus, Standard and Poor’s recently reported that 44.2% of the revenues of companies in the S&P 500 index were generated abroad, up from 32% five years ago. With almost half of their revenues being earned in foreign currencies, these firms make tempting purchases, or even takeover targets, for foreign-based investors.

Any appetite overseas buyers are developing for U.S. assets could be easily spoiled, however. Asian investors are keenly aware of opportunities elsewhere. They are on the lookout for signs that Americans will not welcome foreign purchases of domestic companies—they remember the Congressional opposition to the bid by CNOOC, the Chinese oil giant, for U.S.-based Unocal. If barriers are raised against the acquisition of U.S. assets, then the dollar will be dumped on the foreign-exchange market and money will flow into currencies in countries where such investments will be welcome. And if foreigners turn away from dollar investments, the economic repercussions will be severe. Without overseas buyers, stock and bond prices in the U.S. will fall and the dollar will continue to slide. This will drive up the price of imports, especially oil, worsening inflation and reducing consumers’ income.

So a weak dollar is good for us. But a weakening dollar would be bad. Don’t you just love currency stuff? It makes almost everything else in finance seem simple and straightforward.

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