New York / Rio De Janerio: Supermodel Gisele Bundchen wants to remain the world’s richest model and is insisting that she be paid in almost any currency, but the US dollar.
No dollars please:Gisele Bundchen (foreground) during the Milan Fashion Week in February.
Like billionaire investors Warren Buffett and Bill Gross, the Brazilian supermodel, who Forbes magazine says earns more than anyone in her industry, is at the top of a growing list of rich people who have concluded that the currency can only depreciate because Americans led by President George W. Bush are living beyond their means.
Even after the dollar lost 34% since 2001, the biggest investors and most accurate forecasters say it will weaken further as home sales fall and the Federal Reserve cuts interest rates. The dollar plummeted to its lowest ever last week against the euro, Canadian dollar, Chinese yuan and the cheapest in 26 years against the British pound.
“We’ve told all of our clients that if you only had one idea, one investment, it would be to buy an investment in a non- dollar currency,” said Gross, the chief investment officer of Pacific Investment Management Co. in Newport Beach, California, and manager of the world’s biggest bond fund. “That should be on top of the list,” said Gross, whose firm is a unit of Munich-based insurer Allianz SE.
The dollar fell 0.8% last week to $1.45 against the euro, the weakest since the euro started trading in 1999. It lost 2.8% against the Canadian dollar to 93.51 cents and 1.8% versus the pound to $2.09. The Fed’s US Trade Weighted Major Currency Dollar Index tumbled to 76.3, from 112.89 in January 2004. On Friday, the rupee closed at 39.31 to the dollar, above the 45 levels it used to trade at a little over a year ago.
BNP Paribas chief currency strategist Hans-Guenter Redeker, the most accurate foreign exchange forecaster last quarter in a Bloomberg survey, said the dollar may drop to $1.50 per euro by the year-end. The median estimate of 44 strategists surveyed by Bloomberg is for the currency to end the year at $1.43 per euro. Among those surveyed last week, the forecast ranges from $1.42-1.50.
When Bundchen, 27, signed a contract in August to represent Pantene hair products for Cincinnati-based Procter & Gamble Co., she demanded payment in euros, according to Veja, Brazil’s biggest weekly magazine. She’ll also get euros for the deal she reached last October with Dolce & Gabbana SpA in Milan to promote the Italian designer’s new fragrance, The One, Veja reported. Bundchen earned $33 million (Rs130 crore at today’s rate) in the year through June, Forbes reported in July.
“Contracts starting now are more attractive in euros because we don’t know what will happen to the dollar,” Patricia Bundchen, the model’s twin sister and manager in Brazil, had said in a telephone interview in September from Sao Paulo. She declined to discuss details of the arrangements last week, as did Anne Nelson, Bundchen’s agent in New York at IMG Models. P&G’s Sao Paulo-based external relations director for Brazil, Andre Quadra, said he couldn’t give details of the Pantene deal because of a confidentiality pact.
Analysts in a Bloomberg survey expect the dollar to gain in the coming months as stronger than forecast reports suggest US consumers will keep the economy out of recession. Payrolls grew by 166,000 in October, double the median forecast of economists in a Bloomberg survey. The dollar will rise to $1.43 per euro this year and $1.35 by the end of 2008, according to the median estimate in the survey.
“So far the data has shown the US economy may not be slowing to the extent the majority of the market had expected,” said Omer Esiner, an analyst at currency trading company Ruesch International Inc. in Washington, who expects the US currency to strengthen to as much as $1.38 per euro. “That could temper policy easing down the road and lend support for the dollar.”
Moving to Asia
Buffett, Berkshire Hathaway Inc. chairman, whom Forbes in April ranked as the world’s third richest person behind Bill Gates and Carlos Slim, told reporters in South Korea last month that he is bearish on the US currency.
“We still are negative on the dollar relative to most major currencies, so we bought stocks in companies that earn their money in other currencies,” Buffett said 25 October.
Jim Rogers, an ex-partner of investor George Soros, said last month that he’s selling his house and all his possessions in the US currency to buy China’s yuan. “The dollar is collapsing,” Rogers said last week in an interview. “I’m moving to Asia because moving to Asia now is like moving to New York in 1907 or London in 1807. It’s the wave of the future,” he added.
The dollar is falling as investors seek better returns outside the US. Developing Asian nations, including China and India, will grow 9.8% this year, compared with 1.9% for the US, the International Monetary Fund (IMF) said last month.
China, India and Russia accounted for half the global expansion over the past year, and the euro region will expand 2.5% in 2007, outpacing the US for the first time since 2001, the Washington-based IMF estimates.
“The world has learned to live with a weak dollar,” said Jay Bryson, a former Fed analyst who is now a global economist in Charlotte, North Carolina, at Wachovia Corp., the fourth largest US bank. “It’s not worried. It doesn’t rely on the US as much as it once did.”
Bryson forecasts that the dollar will weaken to $1.50 per euro by the end of June.
The US currency dropped in the past two months as the Fed cuts its target rate for overnight loans between banks twice, to keep a decline in home sales from starting a recession.
The rate was reduced by three quarters of a percentage point to 4.5%, including a quarter point last week. The National Association of Realtors trade group in Washington had said on 10 October that existing home sales may fall 11% this year.
Lower rates have made yields on US debt less attractive. At 3.36%, US two-year treasuries yield 0.26 percentage point less than German government bonds of similar maturity. The last time treasuries yielded less than bonds was 2004. The weaker currency has cushioned the US economy during the worst housing recession in 16 years. Gross domestic product (GDP) grew at an annual rate of 3.9% in the third quarter, the most in more than a year, the commerce department said on 31 October in Washington.
The five-year, 67% drop against the Canadian dollar has made it cheaper for fans from Toronto to drive the 110 miles (177km) to Orchard Park, New York, to watch the Buffalo Bills play football. Canadians account for 11% of the team’s season tickets this year, up from 6.5% in 2005, according to Scott Berchtold, the Bills’ vice-president of communications. At Sunday’s annual Canada Day game, a record 23% of the sellout crowd of 73,967 fans were from Canada, he estimated.
“When the Canadian dollar was down around 65 cents, we didn’t get anybody,” Ralph Wilson Jr, the team’s owner, said in an interview. “When the dollar fell, we starting getting some people.” The Canadian dollar bought 61.76 US cents in 2002. The dollar’s drop also makes American goods cheaper abroad. US exports were a record $138.2 billion in August, government data shows.
Net exports added 0.93 percentage point to the American GDP last quarter, offsetting a 1.05 percentage point drag from housing, government data shows. “As long as the dollar’s decline doesn’t trigger inflation, it’s a good thing, helping the US economy to stay out of recession,” said Robert Mundell, a professor at Columbia University in New York who won the Nobel Prize for economics in 1999.
The commerce department’s price index for personal consumption expenditures, excluding food and energy, rose 1.8% in September from a year earlier, the same as in August. The Fed forecasts the index will rise 1.75-2% next year.
Wealthy clients at San Francisco-based Union Bank of California have doubled their deposits in foreign currencies to $60 million the past two months as a hedge against a decline, said Bradley Shairson, head of currency and derivatives at the bank. US investors bought $198 billion in foreign securities this year through August, 72% more than in the same period last year, treasury department data shows.
That’s the same strategy as sovereign wealth funds run by the largest exporters and oil producers, including China, Singapore and Qatar, said Stephen Jen, head of currency research at New York-based Morgan Stanley.
Aaron Kuriloff, Pimm Fox and Betty Liu in New York contributed to this story.