If you're right about the dollar, Jim, and I think you are, the impact on investors will be huge.

The falling dollar has played an enormous role in the strong returns we've all enjoyed on our international equity investments recently. How big?

The table below compares the returns of the MSCI EAFE Index—the leading index of international, developed market equities—depending on whether you invested in dollars or in the local currency.

Vive la différence!

U.S. investors enjoyed an 11.2% return in 2007, for instance, while local investors limped along with a paltry 1.2% rise. In 2006, the dollar return nearly doubled the local currency return, 26.3% vs. 13.8%. On a three-year annualized basis, U.S. investors earned a hefty 10.5% return, while local markets showed just a 2.1% result.

The results are slightly less pronounced, but still important, when you look at emerging markets. Using the MSCI Emerging Markets Index as a proxy, on a 3-year basis, the falling dollar contributed about 4% annually to returns.

Since we're talking about the euro specifically, I thought I'd show that too. The results are most startling: The euro's gains made up 10.5% of the 13.9% return on the MSCI Europe Index last year, as well as 17.8% of the 33.7% return in 2006. 

Nothing makes the case more clearly than the 3-year return: While European investors limped along with less than a 1% return, U.S. investors enjoyed an 11.1% boost. On the same stocks! The only difference is the currency.

If the dollar reverses, all these numbers will work in the opposite direction: U.S. investors with substantial allocations overseas will feel a MAJOR hit.