Posts Tagged ‘assets’

The US Dollar And Asset Prices

Wednesday, February 17th, 2010

Over the last few years, there has been an inverse correlation between price movements of the US Dollar and many asset classes.  This inverse correlation appears to be strengthening over time.

This inverse correlation can be seen in the chart below.  For the sake of simplicity, I am only comparing the USD to the S&P500 – but as aforementioned this inverse correlation can be seen among a diverse group of assets.

Here is the 10-year daily chart.  As one can see, the inverse correlation appears to have started roughly during 2003, and has persisted to the present:

chart courtesy of StockCharts.com

While this inverse correlation has been frequently commented upon in the media, there are two aspects of this relationship that I have not heard discussed.  First, what is causing this inverse correlation?  Second, shouldn’t the existence of this relationship cause some unease?

The answer to both of these questions is likely complex.  However, I do believe they are very important issues.

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SPX at 1094.87 as this post is written

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“Opportunity of a Lifetime”?

Monday, June 8th, 2009

One phrase that I have heard mentioned a few times is that the economic and market declines of 2008-early2009 created a “Opportunity of a Lifetime” to buy stocks, businesses, and other assets.

I am not sure what reasoning is used to justify the “Opportunity of a Lifetime” phrase (and no reasoning has been provided).  It would seem, however, that for this to be true, one would have to believe that the severe market and economic declines experienced in 2008 and early 2009 were transitory and presumably represented some inexplicable downdraft that will have no ongoing significance.  In other words, now things are getting back to “normal,” and the trends we have seen from 2002-2007 (if not earlier) will return…i.e. strong markets for assets and strong corporate performances.

Readers of this blog know that I am not of that opinion.  I believe that we are in a completely “new environment,” and that, as such, it is dangerous to rely on historical trends for forecasting or valuation purposes. 

For those who are skeptical of this “new environment” classification, I could (and have) provided various arguments; however, one point in particular I would highlight is never before have we had such pervasive (and large scale)government intervention and “guarantees” in existence in various markets.   In my opinion, this alone indicates we are in a “new environment.”

SPX at 929.02 as this post is written

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