The Dollar Must Decline for the Market to Rise

The only way this market can continue its parabolic climb is if the dollar gets taken down. This morning, as I watched equity futures at 6 AM, I thought it was odd that the dollar had strength while futures were up. Then it happened.

Right around 7:30 the dollar began to drop as futures kept their gains. This has been typical during this new bull market. While this might make people feel better about the economy, keep in mind that the markets had decoupled themselves from equities. Many may be shocked to learn that the market’s gains were at their expense. If the dollar loses value and equities go up, which is typical, then your net buying power has actually decreased, which nullifies your gains.

I am sure not many people are paying attention to this fundamental fact, but nonetheless it is there and a reality. Even the likes of Cramer are not connecting the dots as he cited higher oil prices for the market’s rally last week while it had little to do with oil at all. It had to do with the decline in the dollar’s value, which drove oil higher, along with significant draw downs in inventory.

I am not sure if the media is intentionally ignoring this fact or not, but it is there, which also explains higher commodity prices as well. At this rate, the Dow could hit 14,000 again, but your buying power will be diminished. A weak dollar is good for your multinational companies and commodities, but nothing else. I do not know about you, but I am not a fan of our currency being devalued in order to prop up a failing bank system, which is exactly what is happening.

To maintain your buying power, you should consider having commodities in your portfolio. I favor gold, silver, platinum and palladium, but you may favor something else like oil. It does matter what commodity you choose as you want a liquid investment with strong fundamentals. For that reason I heavily favor precious metals, but the risk is if a black swan emerges. If we have another 2008 event, money will pour into the dollar, driving commodities lower. This is why you need to be diversified between asset classes; however if you do not own any commodities, what are you waiting for?

Comments

[Tony Petroski]

Ray:

"A weak dollar is good for your multinational companies and commodities, but nothing else. I do not know about you, but I am not a fan of our currency being devalued in order to prop up a failing bank system, which is exactly what is happening."
I'm on your side, and it's being done to prop up a failing bank system, but this is a race to the bottom.

Chin up. We'll get through this.

2009 Aug 24 11:49 AM

[epeon]

if your thesis is correct, then the stock market is going to take off. Because current administration policies will trash the dollar.

2009 Aug 24 12:02 PM

[ManAboutDallas]

It will, briefly. Up to about 10,334 which is the 50% Fibo of the October 2007 all-time top and the March 2009 panic low; and also roughly the tipping point of the October 2008 Massacre.

From there, it's going to be non-stop to 2600 Dow as everyone finally realises the game is over for good and the real panic sets in.


On Aug 24 12:02 PM epeon wrote:

> if your thesis is correct, then the stock market is going to take
> off. Because current administration policies will trash the dollar.

2009 Aug 24 01:25 PM

[Andy1234]

a devalued dollar also favors those who hold a large amount of debt. I just purchased a condo with the first time homebuyers $8K.....and for the first time am in debt. I have a feeling inflation will run strong....I have lots of investments in reits (canada) and oil companies that pay dividends, with smaller speculative (but earning money) oil, NG, gold stocks. I will continue to play it this way. I am just debating if I should buy another condo, or buy a nice car...or something....as my investments will continue to increase....and my dividends continue to get larger.

2009 Aug 24 02:22 PM

[MudEngineer]

Look at the really big picture of how much debt the U.S. and the world have accrued. Have patience on any new purchases, as this huge credit bubble built up over at least 20 years unwinds; all material things will plummet in price. Wait, keep your money in cash or safest possible thing next to cash and you'll be able to buy 4 condos in the future and rent them all out for great income.

Cars always depreciate, never a good investment; but later on if you want to buy two or three you will have the cash for those too.


On Aug 24 02:22 PM Andy1234 wrote:

> a devalued dollar also favors those who hold a large amount of debt.
> I just purchased a condo with the first time homebuyers $8K.....and
> for the first time am in debt. I have a feeling inflation will run
> strong....I have lots of investments in reits (canada) and oil companies
> that pay dividends, with smaller speculative (but earning money)
> oil, NG, gold stocks. I will continue to play it this way. I am just
> debating if I should buy another condo, or buy a nice car...or something....as
> my investments will continue to increase....and my dividends continue
> to get larger.

2009 Aug 25 03:19 PM