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Jim - I always use intermarket analysis, but on a day-to-day basis there
is way too much noise. To attempt to do that has filled a book with bad
calls by yours truly. I have seen folks try to tie the dollar to the
stock market and bond market on a daily basis as if it was the gospel,
and then they can never understand why it does not work.
I spent time years ago looking at these relationships. In the case of
bonds, I have seen periods of months even where the dollar and bonds
moved in the opposite direction. In fact, the relationship is not with
bonds themselves, but when you regress, it must be in relation to the
spread between interests here and the foreign currency. Just regressing
US bonds to the dollar leaves out half of the equation. And, even then,
for periods of time, the rate spread and the dollar might not work the
way the texts say they should.
As for the stock market and the dollar, I find that something next to
useless. I've seen comments talking about how the US stock market cannot
rally if the dollar falls, and vice versa. It seems US stocks rose from
1985 to 1995 when the dollar bottomed, last I looked. I do not know
where people get this stuff. No correlation there and none comparing US
and foreign stock performance versus foreign currency rates that I've
ever found to be particularly reliable.
Stock markets are far to small to move currencies. The flows from the
equity markets are tiny compared to fixed income, trade and fixed
investment. If there is a relationship between currencies and stock
markets, it is because they might be reflecting the same thing. Weaker
stocks are forecasting a weaker economy. A weaker economy may lead to
lower interest rates. Lower interest rates (relative to another country)
lead to a lower currency.
Steve Poser
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Steven W. Poser, President
Poser Global Market Strategies Inc.
url: http://www.poserglobal.com
email: swp@xxxxxxxxxxxxxxx
Tel: 201-995-0845
Fax: 201-995-0846
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