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Kent -
These are all valid points, and I have never argued that they are not a
factor, but, if the US stock market falls, it typically takes the other
markets with it. Foreigners bought and held US stocks and bonds even as the
dollar collapsed from the mid-1980s and on into 1995. The buck got crushed
in late-1994 and early 1995, but that is when the stock market took off. All
I am saying is that the relationship is neither constant, nor steady, and
that there are lags. You can almost never make an argument for the dollar
falling on one day and stocks the same day or the day after except for
exceptional situations. And, if there is cause/affect, it is probably dollar
to stocks and bonds. I have seen folks say lower stocks means lower dollar.
That is what I rail against the most.
The point I am making, again, is stocks causing a currency to drop is not
enough. The flows are too small. Look at Japan. The yen rallied for five
years after the Nikkei topped! Neither the weak Nikkei nor the collapsing
Japanese economy weakened the yen! Nothing, and I mean nothing, works all
the time.
For that matter, the dollar really barely moved versus Japan from a year
ago, but the Nikkei is far higher, and US stocks are higher too. People that
write about this cause and effect are always happy to quote a day-to-day
coincindence, but they never bother backing it up with correlations. This is
because the correlations are not consistent. I know. I've run them (although
not in the past few years).
As for the debt story, the US national debt, on a percentage of GDP is the
smallest of any of the major countries anywhere. The US$ is also a reserve
currency. The Euro could partially supplant it, but we are not even close to
that right now. US Treasuries, or eventually, US agencies possibly, will be
the global benchmark, and will likely remain a major part of all fixed
income portfolios, almost regardless of the dollar (they are typically
largely hedged anyway).
Steve Poser
---
Steven W. Poser, President
Poser Global Market Strategies Inc.
http://www.poserglobal.com
swp@xxxxxxxxxxxxxxx
Tel: 201-995-0845
Fax: 201-995-0846
-----Original Message-----
From: listmanager@xxxxxxxxxxxxxxx [mailto:listmanager@xxxxxxxxxxxxxxx]On
Behalf Of Kent Rollins
Sent: Tuesday, June 06, 2000 9:53 PM
To: realtraders@xxxxxxxxxxxxxxx
Subject: [RT] Re: Bonds, dollar, stocks
Steve
If you are Japanese or German and you have yen or marks invested in the S&P
and the dollar begins to decline, so does your investment. You wouldn't
want to throw a lot of money at China right now without shorting their
currency to offset the risk of devaluation. Plus, there are the things that
you mentioned. And there is the problem of if you have a really big
foreign-held national debt and your currency rolls over, who's gonna pay for
that?
Kent
-----Original Message-----
From: swp <swp@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>"Realtraders" <realtraders@xxxxxxxxxxxxxxx>
Date: Tuesday, June 06, 2000 8:51 AM
Subject: [RT] Bonds, dollar, stocks
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
---
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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