U.S. Dollar Down 12.5 Percent and S&P 500 Up 50 Percent since March

[Orwellian_Ghost]

U.S. Dollar Down 12.5 Percent and S&P 500 Up 50 Percent since March. How the U.S. Treasury and Federal Reserve Juice the Stock Market.



Americans have missed one serious correction since the manic stock market took off in March. Since that time the value of the U.S. dollar, the bedrock of our economic system has fallen a stunning 12.5 percent. Currencies should not fluctuate this much especially the world’s reserve currency. Back in December, I talked about how the U.S. Treasury and Federal Reserve were determined to destroy the dollar for the sake of bailing out our massive debt. The plan in the short run has created a stunning stock market rally that has set the S&P 500 on fire to a 50 percent rally. In a recession this profound, you don’t typically turn things around in two years (the recession started officially in December of 2007). Yet this appears to be more of a bear market rally since the unemployment picture will remain bleak for months to come.

It is interesting how little coverage the tanking dollar is receiving. Maybe people are just happy that their stocks are running back up even though P/E ratios are extremely expensive. Yet the correlation between the dollar going under and stocks rallying is undeniable:



Now you might ask, why at the peak of the panic did the U.S. dollar reach a 3-year high? You have to remember that for almost a year, the notion of decoupling was making the rounds across investment communities. This idea was based on the premise that the U.S. was going to have a silo like decline while nations around the world somehow prospered with the biggest economy going under. This had as much merit as believing subprime loans would be a contained issue. So in late 2008, the idea was put to rest and people started rushing to safety especially with the implosion of banks like Lehman Brothers and the virtual nationalization of Fannie Mae and Freddie Mac. In March, investors had enough and the U.S. dollar still reigned supreme as a safe haven.

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http://www.mybudget360.com/stock-market-dollar-store-us-dollar-down-125-percent-and-sp-500-up-50-percent-since-march-how-the-us-treasury-and-federal-reserve-juice-the-stock-market/

[ThomWV]

1. We are in a European Stock fund that is up nearly 80% this year.

Calendar year. 80% in 8 months.

[HamdenRice]

2. Not being able to add, subtract, multiply or divide helps one make colorful doomsday scenarios!!1@1!

Economic illiteracy and mathematical innumeracy helps one come up with the most colorful doomsday scenarios and conspiracy theories!!

The operative phrase in the quoted language is that the dollar is down from "a 3-year high".

In other words, during the financial crisis, contrary to what the doomers and let-it-failers predicted, the global economic system fled to the dollar as a safe haven. This drove the dollar up to historic highs, and yields on treasuries to almost zero, as the global investment pool could not find enough dollar denominated public securities to invest in.

Now that the financial system is returning to normal, of course the dollar is returning to "normal," which is to say, it is declining to normal levels. This is not evidence of an evil plan by the Fed to destroy the value of the dollar in order to reduce the federal debt.

That plot exists only in the minds of fools, Trotskyites, bear market propagandists, and other chronic malcontents.

[natrat]

9. a sucker is born every minute

[Statistical]

3. If a dollars is worth 12% less it is logical that ALL PRICES rises 12%

12% of the rise in oil is simply due to a dollar is worth less and thus it takes 12% more to buy the same amount.

What is another thing priced in dollars.....hmmm

Maybe STOCKS that make up the S&P 500?

12% of 50% gain is simply due to the fact that a dollar is worth 12% less than it was at the peak.
You had a peak on the dollar and a bottom on the s&P. Nothing bizarre that dollar would correct downward and supply additional upward pressure on S&P which would already on its own correct upward.

[ThomWV]

4. No, prices of US good will remain unchanged. The 12% is in comparison to other currency

Its all relative to the currency of another country or a basket of currency's. The change in 'value' has no effect on domestically produced goods (to the extent the raw materials are domestic as well).

[Statistical]

6. You can't decoupled domestic and international prices.

Even if you could how many companies (as % of S&P500)
use 100% raw materials in the United States
use 100% labor in the United States
sell 100% of product in the United States

Stock prices are affected by inflation and changes in the value of the dollar just as any dollar priced item is.

Even commodities produced exclusively in the United States are affected by a rise or decline in the dollar.
Take wheat for example. The US imports no wheat however when dollars falls the price of wheat rises.

Now you can't decouple domestic wheat sales from international wheat sales. A farmer isn't going to sell wheat domestically for $1.28 a bushel when he can export it for $1.40. So a falling dollar raises export prices and thus raises prices consumers in the US pay.

When dollar rises and oil prices fall domestic oil companies don't get a higher price then international oil producers do.

A falling dollar makes US stock investments more attractive to foreign investors and companies (and likewise makes fixed income products less attractive).

For example if dollar falls 50% and you are investor who's wealth in in Euros then all stocks are 50% in the US from your point of view. Your Euro now buys twice as much stock. This increases buying pressure and drives prices up.

[ThomWV]

7. Well, here is where it gets way way more complicated than you imply

First off even farmers (who don't do their own exporting) hedge in the commodities markets but more important is that large producers not only stockpile raw materials but they also contract well in advance of their needs - which can have a very soothing effect on inflation on one hand but also the effect of prolonging high prices in the face of falling demand on the other hand. As for stock prices, they are effected very little by inflation and in the short term not much more by the value of the dollar - that's both an expectations game and if some are to be believed* its also a game very much rigged by the biggest player(s).

* all monistic theories are false.

[Statistical]

8. Hedging or not, the domstic price of wheat is affected by international price of wheat

which is affected by dollar exchange.

Even if a farmer is hedged 100% the future price of the next hedge would rise as dollar falls.

Falling dollar raises all prices of products priced in dollars. International vs. domestic consumption has no relevance.

If international buyers are paying more then domestic buyers must pay more also (or else seller will simply sell to the higher bidder).

Stocks are affected by international pressure. A falling dollar makes US stocks cheaper relative to foreign (local for foreign investors). Since it is a market if the domestic stocks provide more value (due to lower relative price in Euros) money will flow from international markets to US markets and provide upward pressure on US stocks.

[berni_mccoy]

5. The dollar is fluctuating as global investments move in and out of the market

During the market crashes, investors look for other places to put their dollars. They throw it at commodities and at foreign currencies (knowing that those markets are now vulnerable). As the market hits a perceived bottom, cash flows back into the U.S. markets and investments are made in the U.S. economy as it is a "good time to buy". This pushes the dollar back up. There are a large push by foreign investors as the market tanked to make American investments at the bottom of the market. Many of these investors made gains and now reap the profit, driving the dollar back down.