It has become conventional wisdom amongst mainstream US market analysts that the weaker the US Dollar gets, the higher US stock markets will go. Their “reasoning” is as follows. First, many HUGE US corporations earn much if not most of their profits from overseas operations. As the US Dollar weakens, these companies increase their US Dollar profits because the foreign currencies they are earning buy more US Dollars. The other “reason” is the contention that a weak US Dollar indicates an increased appetite for (non US Dollar) risk amongst investors. A rising US Dollar would mean that risk acceptance has evaporated - just like it did in late 2008 - early 2009. US Investors would then abandon foreign and domestic stock markets and other “risky” markets in favour of “risk free” government debt.
In reality, these analysts have noticed that the massive rebound on global and especially US stock markets since March has come in lock step with a renewed dive of the US Dollar and have projected the same trajectory into the future. Meanwhile, the “average” American (or “average” citizen of most other nations) looks all around for evidence of the recovery he or she keeps hearing about and can find it in only one place. That’s on Wall Street and the rest of the world’s versions of same.
The US government has watched skyrocketing unemployment, imploding housing prices with the attendant bankruptcies and foreclosures and all the rest. They have injected $US TRILLIONS into the economy and watched most of it flow into the stock market. This is now deemed “necessary” because the stock market rebound is the ONLY bit of positive economic performance they can point to. And THAT all by itself makes stock markets in general and the US market in particular extraordinarily dangerous.
Ó 2009 – The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)
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