USD - riddle me this

Investment Analysis Clubs Macro Economic Trends and Risks
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OK - we all “know” that we are facing an inflation headwind of, say 7% (+/-). So, we are all getting poorer - right? Well, I guess if you peek at your investment portfolio, that’s pretty apparent.

Ah, but take a look at the past year’s graph of the DYX (US dollar index): https://www.marketwatch.com/investing/index/dxy?mod=currenci…

That’s how the greenback is doing compared to a basket of other currencies> it’s gone from 92 to 110 for a whopping gain of about 20% (or roughly what the average equity portfolio has dropped). So that must make you feel whole - that you really haven’t lost money in global terms. Yeah - right :slight_smile:

Anyway, it has always been my contention that the US equity market is inversely proportional to the DXYU, so this is not terribly surprising (for a number of reasons I’ve explained in the past and won’t clutter this post with right now), but begs the following question: why is the USD going up?

Well, the US Fed has broken with the rest of the industrialized nations and has started, not only raising interest rates, but advertising that the trend will continue for the foreseeable future. In a monetary world of TINA, this is a very big deal and foreign entities are buying dollars (thus driving the greenback up) to participate in the carry trade. This pushes the tiny (by comparison to the FOREX and derivative markets) equity market lower - which provides a feedback loop.

If you think we have inflationary problems here, imagine what they must feel like in terms of currencies which are also losing intrinsic value compared to the USD.

Be real carful out there as a strong US dollar bodes ill for the US equity market.

Jeff

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but begs the following question: why is the USD going up?

Maybe it isn’t. Maybe the other currencies are going down. :frowning:

It works for arbitrage but not as an absolute measure of wealth.

My position is that one should invest in the currency of one’s economy. For me that has been the US$ for most of my life. Foreign currency just adds risk and complexity if you are not an expert ForEx trader.

Be real carful out there as a strong US dollar bodes ill for the US equity market.

I don’t invest in “the US equity market.” I invest in great (US) companies. How difficult is it to find a handful of great American companies out of the thousands on the stock market?

Put another way, recession is temporary, Climate Alarmism is here to stay. Bet on the long run.

The Captain

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If you think we have inflationary problems here, imagine what they must feel like in terms of currencies which are also losing intrinsic value compared to the USD.

Any idea why there is no inflation in Japan yet?

Yen is down even a bit more than the average other currency, about 25% just this year … making oil and gas that much more expensive than in USA … ?

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Be real carful out there as a strong US dollar bodes ill for the US equity market.

At the same time, since the US is a net importer a strong dollar is good for the US economy.

DB2

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Jeff,

I must have been born under a bad sign. I am the only one rec’ing your post.

Where is the love?