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
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.