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High or Low? Depends on Whose Money

Not even the spirited U.S. stock price recovery over the four session week ending July 9 was enough to hoist major indexes from what many regard as a danger zone.  Whether the Death Cross of the prior week, the markdown from the recent April highs or assumptions of disappointing coming Quarterly earnings reports, or a sub-1100 S&P 500 (still 3% below its slightly falling 200 Day Moving Average), the combination seems enough to convince observers and investors alike that U.S. stocks are on the cheap side of the ledger, and should be invited in to any long term oriented portfolio.

When measured in U.S. Dollars, this is all true enough.  However, ours is not the only currency in use around Planet Earth, and we would do well to assume that other investor groups looking on from different perspectives and different currency denominations in their accounts may reach different conclusions.  Through June 30, 2010, the following are cumulative percentage changes in a handful of U.S. Averages/Indexes, 2010 Year-To-Date and over the 18 months since year end 2008, negative outcomes in parentheses:

                                     Year-To-Date        From 2008
           DJIA                         ( 7.0)                    10.4
           S&P 500                  (  8.3)                    13.2
           NASDAQ Comp       (  7.8)                    32.5
           Russell 2000           (  4.2)                    19.9

Excepting NASDAQ's spirited 18 month lift these returns in no way seem threatening, or in other words money entering the market is not doing so following extended new highs. Immediately below, however, is a replication of the above table, only this time expressed in both EURO (to the left) and Japanese Yen (to the right:

                                    Year-To-Date        From 2008
           DJIA                    8.8   /  13.8          24.8 / 36.2        
           S&P 500             7.2    /  12.2         28.0 / 39.8                  
           NASDAQ Comp   7.7   /  12.8         50.0 / 63.7
           Russell 2000      11.9  /  17.2         35.6 / 48.0

Of a sudden, things don't look so very cheap.  The protracted relative strength of the U.S. dollar --- its weakness against Gold notwithstanding --- when measured against these two foreign currencies may have already and will continue to confer its share of benefits.  But what is certain is that it has firmed up the domestic price level in the eye of some overseas investor groups.  It seems most prudent to me that this be regarded as placing a cap on any immediate or near term advance.

None of the foregoing should be construed as advocating a weak dollar pursuit or policy.  It is merely to insist that --- as always in financial and economic realms --- price changes have consequences, and best future results are obtained by keeping them in rigid focus.  


Disclosure: None