Weaker Dollar Could Drive Up Market

by: Roger Nusbaum

Roger Nusbaum submits: A reader who I presume chooses to be anonymous passed along a photocopy from a textbook that showed the German stock market going up dramatically during the beginning of its hyper inflation-mark devaluation days of the Weimar Republic of the 1920s.

The theory behind this was that stock prices had to go up a lot just to stay even, so to speak. I am in no way implying the US Dollar will have that type of devaluation but the notion of a weaker dollar forcing stocks up just to stay even is a possibility. If it plays out this way, the extent to which the Dollar does weaken would shape the details of how long this type of rally would last.

I could see the Dollar going down by 10-15% and under this little theory, perhaps stocks rally short term by a similar amount before correcting. It would make sense for the resultant correction to go down further than the bottom of the recent trading range. In eyeballing a chart a move to below 1150 on the S&P 500 but not below 1100 might be a reasonable guess.

This would be unpleasant but not calamitous. I just can't buy into an everyone in the bunker scenario but a rougher recession than we've had over the last couple of decades does not seem impossible. Remember, this is a theory.