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Stocks love a weak dollar...
- Thread starter PohPoh
- Start date
I beg to differ with those who maintain that neither the 1987 weakness under Reagan nor the current weakness under Bush should be of concern. Both are bad in the long run. Both are the result of profligate spending on wasting assets that will produce a net negative return, while resulting in a transfer of wealth from the general population to specific segments of this and of foreign economies. Had our deficit spending been an investment in infrastructure, the result might have been net positive, but as it is , the result is quite harmful, in my opinion, to the long range economic stability in, and the standard of living of, this country. If one compares devaluation of the dollar to a very stable currency (the Swiss Franc, for example) one will discover that the official inflation figure is seriously underestimated. This is of considerable advantage to the Treasury, naturally, because entitlements are indexed to the official figure, not the actual figure.
Here are a few points for your consideration and rebuttal:
1. When debt is monetarized, as is seemingly the wont of all democratic, debtor nations, the effect is little different, in aggregate, from a tax increase, but the impact is not distributed in the same way.
2. Foreign earnings of US Corporations during times of currency devaluation should be corrected for devaluation using a stable benchmark and not a trumped up government, or Wall Street, figure. Without the proper correction, which is usually not done when earnings are reported, it is not possible to know from earnings alone whether there was an improvement in business through increased market share or margins. If all of the earnings increase reported in dollars is due to devaluation, it is meaningless, because the buying power of those earnings is the same as it would have been had earnings not increased at all, and the dollar had remained constant.
3. Currency devaluation will result in a a transfer of ownership of US assets to other countries. In general, this is not good for people who reside in the US and have no foreign assets themselves.
This leads to a transfer of wealth from this country to other countries. We become poorer, on average, while they become richer.
4. With regard to the remark that "stocks love a weak dollar" it might be well to remember that in time a weak dollar usually has resulted in a Fed rate increase, and the market most decidedly does not like that. When one corrects the current S&P for dollar devaluation it appears that the return in the current bull market has been close to its historic average for other bull market periods.
It is my personal opinion that we have become irrational in our approach to national security and diplomacy, and we have fallen into the trap that Eisenhower warned us against. As a result, and for whatever reason, we have wasted our greatest asset, our younger generations, on senseless wars at tremendous monetary cost. Other nations have been taken down by the same folly. What will happen to us in the very long run, i do not know, but the current path we are on does not seem to be the best one if we want a long and prosperous future as a nation. We can take heart, however, in the fact that nations can exist in a state of insolvency for a very long time, but there are always nasty consequences. Argentina would be one example.
Here are a few points for your consideration and rebuttal:
1. When debt is monetarized, as is seemingly the wont of all democratic, debtor nations, the effect is little different, in aggregate, from a tax increase, but the impact is not distributed in the same way.
2. Foreign earnings of US Corporations during times of currency devaluation should be corrected for devaluation using a stable benchmark and not a trumped up government, or Wall Street, figure. Without the proper correction, which is usually not done when earnings are reported, it is not possible to know from earnings alone whether there was an improvement in business through increased market share or margins. If all of the earnings increase reported in dollars is due to devaluation, it is meaningless, because the buying power of those earnings is the same as it would have been had earnings not increased at all, and the dollar had remained constant.
3. Currency devaluation will result in a a transfer of ownership of US assets to other countries. In general, this is not good for people who reside in the US and have no foreign assets themselves.
This leads to a transfer of wealth from this country to other countries. We become poorer, on average, while they become richer.
4. With regard to the remark that "stocks love a weak dollar" it might be well to remember that in time a weak dollar usually has resulted in a Fed rate increase, and the market most decidedly does not like that. When one corrects the current S&P for dollar devaluation it appears that the return in the current bull market has been close to its historic average for other bull market periods.
It is my personal opinion that we have become irrational in our approach to national security and diplomacy, and we have fallen into the trap that Eisenhower warned us against. As a result, and for whatever reason, we have wasted our greatest asset, our younger generations, on senseless wars at tremendous monetary cost. Other nations have been taken down by the same folly. What will happen to us in the very long run, i do not know, but the current path we are on does not seem to be the best one if we want a long and prosperous future as a nation. We can take heart, however, in the fact that nations can exist in a state of insolvency for a very long time, but there are always nasty consequences. Argentina would be one example.
Quote from piezoe:
I beg to differ with those who maintain that neither the 1987 weakness under Reagan nor the current weakness under Bush should be of concern. Both are bad in the long run. Both are the result of profligate spending on wasting assets that will produce a net negative return, while resulting in a transfer of wealth from the general population to specific segments of this and of foreign economies. Had our deficit spending been an investment in infrastructure, the result might have been net positive, but as it is , the result is quite harmful, in my opinion, to the long range economic stability in, and the standard of living of, this country. If one compares devaluation of the dollar to a very stable currency (the Swiss Franc, for example) one will discover that the official inflation figure is seriously underestimated. This is of considerable advantage to the Treasury, naturally, because entitlements are indexed to the official figure, not the actual figure.
Here are a few points for your consideration and rebuttal:
1. When debt is monetarized, as is seemingly the wont of all democratic, debtor nations, the effect is little different, in aggregate, from a tax increase, but the impact is not distributed in the same way.
2. Foreign earnings of US Corporations during times of currency devaluation should be corrected for devaluation using a stable benchmark and not a trumped up government, or Wall Street, figure. Without the proper correction, which is usually not done when earnings are reported, it is not possible to know from earnings alone whether there was an improvement in business through increased market share or margins. If all of the earnings increase reported in dollars is due to devaluation, it is meaningless, because the buying power of those earnings is the same as it would have been had earnings not increased at all, and the dollar had remained constant.
3. Currency devaluation will result in a a transfer of ownership of US assets to other countries. In general, this is not good for people who reside in the US and have no foreign assets themselves.
This leads to a transfer of wealth from this country to other countries. We become poorer, on average, while they become richer.
It is my personal opinion that we have become irrational in our approach to national security and diplomacy, and we have fallen into the trap that Eisenhower warned us against. As a result, and for whatever reason, we have wasted our greatest asset, our younger generations, on senseless wars at tremendous monetary cost. Other nations have been taken down by the same folly. What will happen to us in the very long run, i do not know, but the current path we are on does not seem to be the best one if we want a long and prosperous future as a nation. We can take heart, however, in the fact that nations can exist in a state of insolvency for a very long time, but there are always nasty consequences. Argentina would be one example.
You are hired.
Quote from PohPoh:
Why?
and until when?
This collapse in the USD is amazing..
Does Benny not care?
I wonder why all of you have missed the point.
Dollar has a negative correlation with crude oil prices. It is easy to see that by looking at weekly EUR/USD and continuous CL charts.
the reason this is happening is that oil producing countries including Russia which is also a major natural gas distributor have accumulated huge dollar reserves and keep converting them into other currencies for investment diversification purposes.
Thus, when the price of a commodity that is paid in a specific cureency rises it hurts the underline currency if:
1) The bulk of production is not based in the country that issues the currency
2) The producing countries do not keep their currency reserves but exchange them for other currencies for investment diversification purposes
When 1 and 2 above are true, there are also several side effects that may deter the country that issues the currency based on which the commodity is priced, in this case USD and the commodity is crude oil, from intervening in the currency markets to support it. One of these side effects is revaluation of dollar denominated assets such as equities. The reason this revaluation happens is twofold:
A) Equities become cheaper for foreign investors
B) Multinational corporation income increases when valued in local currency.
The boomerang effects are:
I) Imported inflation
II) Loss of credibility in the international political arena (most serious IMO). Other governments hate to see local funds flee to USA instead of being invested locally.
There is more....
Ron
Quote from Pa(b)st Prime:
When in the last half century have wage slaves without hard assets been rewarded?
Get with the program. The Brazilianization of America is here.
You don't really think the Mexican carpenter is going to keep pace with inflation, do you?
Instead of whining about the plight of the working poor (which you're powerless to do anything about) concentrate on implementing a strategy that keeps you out of Shantytown.
This is a rather profound post, in my opinion. Whether i agree, or not, isn't important. What is important is what can be read between the lines. And too, how much truth is here.