Foreign buyers exited the market for U.S. dollar-denominated debt and securities when the credit crisis surfaced in August of 2007. And their return since is proving to be somewhat tentative, as revealed in the latest U.S. Treasury report on capital flows. In July 2008, foreigners once again fled the scene, and were net sellers in U.S. capital markets to the tune of $25.6 billion. The stability of U.S. credit markets relies on foreigners recycling their trade surpluses back into the U.S. economy by purchasing dollar-denominated IOUs. As large financial institutions continue to tumble, and the Fed turns on the printing press in an attempt to limit the damage, the flight to safety will mean a flight from the dollar and further trouble for U.S. markets.The financial storm we’ve been forecasting is now hanging over Wall Street, and diversification into foreign markets, an excellent way to achieve protection from currency risk, should be part of every investor’s strategy.