I clearly remember Israeli industrialists begging for the Bank of Israel to intervene in forex markets in order to pick up exports. We were told that a strong shekel caused a loss of over $2 billion in lost business, because Israeli goods were more expensive abroad. Industrialists got their wish and there was central bank intervention and not only that but the USD made a big move against most major currencies. Sounds like great news for exporters, right?

Wrong. Globes is reporting that Israeli exports actually fell in October, the first drop in 5 years. ” exports of goods (excluding diamonds) of 3.4% and an annualized increase in imports of goods of 2.8% in August-October 2008, the Central Bureau of Statistics reported today. This is the first drop in exports in five years, although there have been slowdowns in the rate of growth.”

If i am not mistaken, the Shekel has been strengthening over the last 5 years. That would mean that the industrialists have it backwards. Wouldn’t be the first time. I think( I remember hearing this but don’t quote me) former president Ronald Reagan once said something like ” a strong currency is the sign of a strong country and strong economy.”

Maybe the industrialists should concentrate on making better products at cheaper prices. I bet if they can compete on quality and price, then their sales will increase regardless of currency fluctuations.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Without much fanfare or notice, the US dollar is continuing its strong turnaround against the Israeli Shekel. It wasn’t to long ago that the greenback fell, intraday, to 3.21 against the Shekel. Today the Dollar is up to over 3.58 against the Israeli currency.

Why? Some will point to continued Bank of Israel intervention in the forex market. It’s one thing to say that they can impact the market for a day or two. It’s quite another thing to say that they can continue to impact a currency for a few weeks continuously.

I think that a bit of rationale has come back to the market. There really was no reason that the Shekel was so strong. How could it be that when Iran tested their missiles a month or so ago, that the Shekel actually strengthened? The Iranians were testing missiles that could threaten Israel’s very existence, and the local currency got stronger? Hard to believe.

Additionally, with investors realizing that the US isn’t going out of business and the fact that recent economic data coming out of Israel shows the beginnings of a slowing currency, the market is in the midst of repricing the Shekel to bring it more in line to where it actually should be in relation to the USD.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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