In a global economy with so much instability, it makes sense to me that cheap USD would be a great incentive for anyone outside of the U.S. to buy U.S. equities. It is (relatively speaking of course) both a geographic and a political safe haven. Could a weak USD cause US equities to rise?
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Would a weak USD cause US Equities to Rise?
- Thread starter BenChi
- Start date
Quote from brandon12:
think back to 1987 a weak dollar caused stocks to crash.a weak dollar should cause rates to sky as all the imports we love will have to rise in price. it ties the hands of the fed to lower
Your assumption that foreign produced goods will skyrocket in price falls flat upon realizing that China is providing producer financing and has pegged the Yuan to the dollar (although allowing it to move slightly over last few months). So, a declining USD against the Euro does not quite mean a change in the USD/Yuan rate by any drastic factor.
A weak dollar SHOULD cause rates to rise to "defend" the USD. Do you really see that happening? Check the bond market.
Dropping rates increases the money supply by facilitating credit. That should support the equity market.
Watch interest rates. They will decide what we should do.
see you're thinking too much. in the 90's same thing happened weak $ ,strong $ rate increases by the fed in 98 and 99 but nothing mattered as things were so bullish then one day bamm it was over.the street can make anything bearish or bullish as they please.when the street decides they want the market to fall they'll spin the dollar,earnings or whatever else they want to be negative.
EXACTLY.
Headlines could look like:
"Weak dollar powers Equities to new high"
or
"Weak dollar sends Dow to its low for the year"
either way they spin it, people will believe it.
Headlines could look like:
"Weak dollar powers Equities to new high"
or
"Weak dollar sends Dow to its low for the year"
either way they spin it, people will believe it.
Quote from brandon12:
see you're thinking too much. in the 90's same thing happened weak $ ,strong $ rate increases by the fed in 98 and 99 but nothing mattered as things were so bullish then one day bamm it was over.the street can make anything bearish or bullish as they please.when the street decides they want the market to fall they'll spin the dollar,earnings or whatever else they want to be negative.
'Weak dollar' is good; 'weakening dollar' isn't.
Excellent Commentary All...................
The biggest item regarding the stability of China...oil prices etc...is demand itself...
If demand for the item is created by $200 per month capability...and thus the $200 changes in value to 130/140X200...obviously demand itself has changed downward...
The people with the declining $200 will of course not want to change their habits ...and this will put downward pressure on prices...if the prices do not change downward ....then simply less quantity is purchased...
In short....China sales volume will decline...oil prices will decline....because there is no other market that can quickly replace the US market...most commodity prices will decline...
...................................................................................................
There are smaller countries that are quite volatile whereby the economies can change very quickly either way...Bigger ships like the US move more slowly...however one can look at the changes that small countries have endured in order to see what can happen in the US...
What will be particularly interesting is what happens to credit as risk increases in the US since the US is credit driven....
..................................................................................................
Equites would shift down because the demand shortfalls would be reflected in China and the welfare oil states which currently have a high demand for US equities....particularly through hedge funds whereby the money is subject to move rather quickly....
Where will money go....Money follows performance....That is where it goes...
The biggest item regarding the stability of China...oil prices etc...is demand itself...
If demand for the item is created by $200 per month capability...and thus the $200 changes in value to 130/140X200...obviously demand itself has changed downward...
The people with the declining $200 will of course not want to change their habits ...and this will put downward pressure on prices...if the prices do not change downward ....then simply less quantity is purchased...
In short....China sales volume will decline...oil prices will decline....because there is no other market that can quickly replace the US market...most commodity prices will decline...
...................................................................................................
There are smaller countries that are quite volatile whereby the economies can change very quickly either way...Bigger ships like the US move more slowly...however one can look at the changes that small countries have endured in order to see what can happen in the US...
What will be particularly interesting is what happens to credit as risk increases in the US since the US is credit driven....
..................................................................................................
Equites would shift down because the demand shortfalls would be reflected in China and the welfare oil states which currently have a high demand for US equities....particularly through hedge funds whereby the money is subject to move rather quickly....
Where will money go....Money follows performance....That is where it goes...
Ha, ha, hah, Polpolik! Very nice! That's exactly how the headlines would read.
It is abundently clear that, because of our heavy debt, the treasury prefers a weak dollar, despite the rhetoric. (Perhaps policy will change now that that Paulson is in Treasury, but when Snow was there it was pretty clear that Treasury wanted to inflate our way out of debt rather than tax or produce our way out. --that creates a little conflict of interests between Bernanke and Treasury, doesn't it?) Rates may go a bit higher in 2007, but i'd be surprised if the increase is enough to substantially strengthen the dollar -- maybe just enough to keep it from getting still weaker. Afterall our creditors can't be that gullible, can they?
It is abundently clear that, because of our heavy debt, the treasury prefers a weak dollar, despite the rhetoric. (Perhaps policy will change now that that Paulson is in Treasury, but when Snow was there it was pretty clear that Treasury wanted to inflate our way out of debt rather than tax or produce our way out. --that creates a little conflict of interests between Bernanke and Treasury, doesn't it?) Rates may go a bit higher in 2007, but i'd be surprised if the increase is enough to substantially strengthen the dollar -- maybe just enough to keep it from getting still weaker. Afterall our creditors can't be that gullible, can they?
Quote from libertad:
If demand for the item is created by $200 per month capability...and thus the $200 changes in value to 130/140X200...obviously demand itself has changed downward...
you must be kidding in the first section of your post (I did not read the rest of it). You realize this is completely nuts... or am I missing a joke here?
you are talking about aggregate demand like it was something from microeconomics driven by individual agent's budget constraint. For aggregate demand however most budget constraints are flexible - look at US deficit in the past decade.....
Low USD simply translates into higher (core) prices if accomodated by unchanged monetary policy. It also affects (usually lowers) external trade deficit.
dhpar wrote...
you must be kidding in the first section of your post (I did not read the rest of it). You realize this is completely nuts... or am I missing a joke here?
you are talking about aggregate demand like it was something from microeconomics driven by individual agent's budget constraint. For aggregate demand however most budget constraints are flexible - look at US deficit in the past decade.....
Low USD simply translates into higher (core) prices if accommodated by unchanged monetary policy. It also affects (usually lowers) external trade deficit.
..................................................................................................
Excellent commentary....
Yeah I know what you are thinking....but what I am getting at is reflective of some of my experiences in other smaller countries where I have watched tax changes...oil prices etc...
And it is quite humorous to hear chatter about prices that consumers just cannot pay as if prices have no end in sight...etc...If oil were to hit $100 ...demand in many parts of the world would drop like a stone...there would be a dramatic drop of people on the road....sales at the pumps would change dramatically....
The point is that one should be careful to assume that demand is not very sensitive...Most of the world is not like the US....
What is particularly interesting here is the drop of the dollar with regards to oil suppliers...The oil suppliers are not going to like a declining dollar scenario...
you must be kidding in the first section of your post (I did not read the rest of it). You realize this is completely nuts... or am I missing a joke here?
you are talking about aggregate demand like it was something from microeconomics driven by individual agent's budget constraint. For aggregate demand however most budget constraints are flexible - look at US deficit in the past decade.....
Low USD simply translates into higher (core) prices if accommodated by unchanged monetary policy. It also affects (usually lowers) external trade deficit.
..................................................................................................
Excellent commentary....
Yeah I know what you are thinking....but what I am getting at is reflective of some of my experiences in other smaller countries where I have watched tax changes...oil prices etc...
And it is quite humorous to hear chatter about prices that consumers just cannot pay as if prices have no end in sight...etc...If oil were to hit $100 ...demand in many parts of the world would drop like a stone...there would be a dramatic drop of people on the road....sales at the pumps would change dramatically....
The point is that one should be careful to assume that demand is not very sensitive...Most of the world is not like the US....
What is particularly interesting here is the drop of the dollar with regards to oil suppliers...The oil suppliers are not going to like a declining dollar scenario...