Posted on 05/20/2010 7:51:10 AM PDT by big black dog
It seems when the dollar is weak, the stock market rises and when the dollar is strong, it drops. Any reason for this?
Stocks are priced in dollars.
Get out. Now.
Weak dollar means it takes more to buy something, thus a higher price.
I only know one thing: We’re in a hell of a mess.
I have a dumb stock market question
Absolutely no such thing these days...
Globalization and across-ocean investing causes the American stock exchanges to react to what’s going on in Europe. The strengthening of the dollar means that the Euro is going down, reflecting on the state of debt in Europe.
If the movement of the dollar is being driven by interest rates then you see the correlation. US lowers interest rate making dollar interest bearing assest less attractive to foreigners so dollar falls but lower interest rates make stocks a more attractive investment to US investors so stock market higher.
Though stocks being priced in dollars is not the whole story.
There is an enormously leveraged dollar-carry (borrowing of dollars) which has allowed investment banks to pump very cheap dollars into stocks.
Now that the dollar is showing sustained strength, those carry-trades are unwinding, and the stock market will whip back to its March lows.
By which I mean - last March’s lows.
Other communist countrys can not afford American products but theirs are cheap to us.
In the short term, the major players are liquidating all their positions (including their gold) just to buy dollars.
In the long term this will reverse.
The answer is Goldline International.
As long as we have a weak dollar it is cheaper for American companies / manufacturers to sell their goods overseas.
IOW: A strong dollar hurts American exporters and helps importers.
The Stock market is considered hedge against inflation (dollar devaulation) like gold and is not tied to the dollar closely global economy.
Plus bonds are tied to a dollar, vs stocks. So investors jump back and forth from bonds(dollars) to stocks.
>> Absolutely no such thing these days...
Yeah, there ARE no dumb stock market questions.
There are, however, some pretty dumb *answers* to stock market questions drifting around out there. :-)
Much of the market, in particular stocks, are owned by foreign investors / funds. Because of this, during a strong dollar cycle, it makes sense for those investors to sell and take profits. During a weak dollar cycle, it make sense to buy.
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