Could someone explain something to me about the dollar and the stock market?

[Individualist]

I've read numerous articles by economists who either say the dollar is in danger of collapsing or that it definitely will collapse. What are your thoughts on this? If the dollar is in danger of collapsing, does it make sense that the stock market closed at almost 500 today? (I'm aware that the market may very well plunge tomorrow, given its track record over the past months.)

[Duer 157099]

1. I don't know, but I believe that China has a lot to lose if the dollar tanks

China is between a rock and a hard place, where they own so much of our debt, but yet they have to do everything possible to keep the dollar propped up (buying more debt) because they will suffer mightily if/when the dollar collapses.

[Individualist]

6. Last night I did an internet search for dollar collapse

after reading this thread - http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=5296476&mesg_id=5296476

The articles that resulted from that search really frightened me. :scared:

[Duer 157099]

7. Well here ya go

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3796671&mesg_id=3796671

[mainegreen]

2. Near as I can tell, the dollar sucks, except when compared to other currencies.

:D

[Art_from_Ark]

12. The dollar REALLY sucks when compared to the yen

In 1970, one dollar was worth 360 yen
In 1984, one dollar was worth an average of 200+ yen, rising up to 260 yen at one time
In 1991, one dollar was worth an average of 130 yen
Today, one dollar is worth about 97 yen

[paulsby]

3. those are two entirely different things. i;ll explain

first of all, just for the record i *am* shorting the dollar. i mentioned here several days ago, i was shorting the dollar (via the EURUSD pair. iow, long the euro, short the dollar) when the EURUSD was at 1.27 and change. the dollar has since dropped .09 (that's 900 pips!) since i shorted it. so, i am keeping 1/2 my profits locked in and trailing my stop.


with that in mind.

ceteris paribus, a weaker dollar is GOOD for the stock market. why? well, if the dollar is worth less, and the stock market is denominated in dollars (stock prices, indexes, etc.) then a weaker dollar ALONE makes many US asset classes, to include stocks CHEAPER for foreign investors


example: stock ABCD is currently at $100 (hypothetical).

if the dollar drops against the euro, and ABCD remains at $100 ticker price, then it is now CHEAPER to purchase. iow, you get the same amount of assets (fractional ownership in ABCD) for less euros .

lower dollar also means that commodities etc. denominated in dollars go UP in price, for the same reason.

i am a frequent trader in the currency markets, and these are an entirely different animal than the stock market.

[Warpy]

4. What we might be seeing is some of the panic sellers

from last October cashing out of T-bills and getting partially back into the market.

I don't think it will last, either. I don't think the buck will collapse completely, if only because too much of the world would be badly hurt if it did and even the currency that benefited would have a tough go of it for decades.

[tama]

14. Interesting 'logic'

Things that feel too bad simply cannot happen, thus...

[Patriot Abroad]

5. If the dollar is losing its value . . .

Then it makes sense for the stock market to go up, as the dollar goes down - the stocks maintain the same relative value.

I'm sure a bunch of economists will now tell me why my thinking is flawed . . .

[girl gone mad]

11. You got it right.

It doesn't always work that way, but if the dollar is seen to be losing value, investors will move into stocks. Foreign stocks or stocks with heavy foreign exposure will often outperform in that scenario, as they seem to have today.

[Tigermoose]

8. It's all relative...

It's all relative to the price of other currencies and assets. There is no absolute standard in which to compare the $.


The economists you are reading probably have an emotional or financial investment in seeing their doom and gloom predictions come true -- especially if they are on the internet :)

[notesdev]

9. Dollar often moves inversely to the market

a "cash" position and an "equity" position are two options for how to store one's money.

Given that, at any given point in time, there is a certain amount of money, some percent will be in cash and some percent in equity. If you make the cash less valuable (by devaluing the currency, like the Fed is doing) then the equity becomes relatively more valuable. Throw in a (criminal) promise to lift a half-billion of debt off the banks and onto the taxpayer, and the stock market tends to rise.

[Individualist]

10. Thank you all for the replies.

When it comes to economics, I find some of it confusing. So, if I understand it right, the performance of the stock market is no indicator of the dollar's strength or weakness. If that's the case, where would one look for indicators (other than the current dollar index) regarding the dollar's strength or weakness?

[prairie2]

13. the dollar is toast or maybe not

with all the trillions that Greenspan cooked up out of thin air still sloshing around there really is no good indicator of what the dollar is doing. Unfortunately the only way that Obama can keep everything from collapsing in on itself is to print more and try to stabilize it with regulation and higher taxes on the bloated parasites at the top.

It is possible to unwind this whole mess but there are many variables. The good news is that China seems to be willing to play ball for now. But when the overseas losses start to pile up against the DOW index companies however, you can expect the stock market to tank. At some point people may simply panic and dump dollars for anything they can get. When those with hard assets refuse to sell, then the dollar goes to zero. While there is no crystal ball; anybody who says this can't happen is only wishing that it won't happen.

[kerrywins]

15. The federal reserve note (dollar) has lost over 90% of its value since its creation in 1913.

The federal reserve note (dollar) has lost over 90% of its value since its creation in 1913.

Government takes property from the people using 2 ways:
- taxation
- counterfeiting


what about borrowing you say? When its time to pay it back, that leads to one of the above.

For well over 50 years now, the favorite way to take property away from the people has been counterfeiting. People know when they have to be taxed, rarely do victims know whats going on when their money is counterfeited.