As the attached graph illustrates, the S&P 500 has recently hit a new all-time high in Japanese yen terms (surpassing its July 1999 peak), while the index remains more than a 1/3 below its September 2000 high in euro terms.

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click for larger graph

Spx_yen_euro

chart courtesy of Mike Panzner

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Aside from any other reasons, perhaps it is Japanese investors who have been lending a helping hand to U.S. equity prices?
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Perhaps the relative growth and inflation rates help to explain the difference

Global_20070221212142

Chart courtesy WSJ

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See also this interesting comparo from the online WSJ about Europe, Japan, and the US.

Category: Currency, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “S&P500 in Yen and Euros”

  1. Bill a.k.a. NO DooDahs! says:

    Hmm. Looks like a four-year bull market in all three currencies!

    Also looks like August of 2006 was a great buying opportunity in all three currencies!

  2. Michael C. says:

    Financial Armegeddon in 2 years? Is that the bearish equivalent of Dow 36,000?

  3. Joan says:

    The central banks, in cahoots and startin’ to squirm, are bettin’ the ranch on the carry trade to provide enough liquidity to float us out of everything that ails us. A quick look at the charts, then, will disclose the uncanny correlation between the direction of the Yen and that of the stock market, i.e., when the Yen weakens, stocks go up. It’s that simple. And since they got the overnight nod from the BOJ et al yesterday, then it’s no wonder that something like junk (HY7 CDX 100 is the example) marked a record tight spread yesterday.

  4. Steve B. says:

    The returns of the SP in terms of foreign cash flow has been an interest for me for some time. It is the natural tendencies of people to be drawn to markets that have risen esp. if the returns are measured in their home currency. I have a chart posted at
    http://marketpit.com/SPX-USD.htm
    showing how investors may be acting to changes in the SP500 based on USD returns.

  5. Eric Tompson says:

    Again, very interesting. Anyone thought about perhaps trying to play the strength of the currency for some currency arbitrage? It’d take a lot of research, but it’d be worth it if you could trade off your money for free.
    Eric
    New York Real Estate

  6. George M. says:

    “Aside from any other reasons, perhaps it is Japanese investors who have been lending a helping hand to U.S. equity prices?”

    While the carry trade has probably been the biggest contributor to the ineffectiveness of BOJs interest rate policy, this hypothesis could also help explain why phenomenally low interest rates in Japan haven’t done a whole lot to stimulate the Japanese economy…

  7. Lauriston says:

    Another reason why the Fed would not like to spook “Japanese investors” (and other foreigners) lest they start withdrawing their money from US assets. Hence the “inflation is tame” etc rhetoric from the Fed, everything is hunky dory. Fed has to compete with other Nations for these funds flows…

  8. Michael C. says:

    Eric Tompson said Again, very interesting. Anyone thought about perhaps trying to play the strength of the currency for some currency arbitrage? It’d take a lot of research, but it’d be worth it if you could trade off your money for free.

    Ya think?

  9. David Graves says:

    The inflation adjusted 2006 GDP number in the bar graph looks to be before the downward reviison for Q4. Brad Setser’s look into reserve growth outside the Eurozone, Japan and the US seems relevant here.

  10. Fred says:

    Off topic:

    Barry…do you have any comments on David Kotok’s (www.cumber.com) bold piece from last week on the coming Capex/productivity boom?

    IMHO…an awesome contrarian call. IPv6 is on no one’s radar — NICE!

  11. JJ says:

    Sweet Jesus, did anyone read Mish’s Global Economic Trend Analysis article on State Tax Revenues? Sounds like any ecomomic weekness will push a helluva lotta states over the precipice.

  12. my1ambition says:

    Financial Armegeddon in 2 years? Is that the bearish equivalent of Dow 36,000?

    We will eventually reach this Financial Armegeddon the same way we’ll reach Dow 36,000. It may take a bit longer than two years though.

  13. wnsrfr says:

    Fred, regarding ipv6, that article makes it sound like the invention of the Internet when in real terms it is closer to the introduction of the 5+4 zipcode…

    The Kotok article includes such laughable statements as: “The flip side is that the terrorists will have it, too. This is a concern for some who may want to limit IPv6 in the name of security.” or “9 Digit zipcodes might allow terrorists to more specifically target their bombs, so we should keep the extra 4 digits in a safe place”.

    His grown children will benefit tremendously by the expanded addressability and capacity of the Internet–”IPv6 will triple their efficiency and reduce their costs. Their cell phone battery life will be much larger. They will be involved in many personal networks. This list is long.”

    Hey, is there a Penny Stock I can invest in to take advantage of ipv6?

  14. michaelcampion says:

    Can anyone explain to me how they are converting the S&P to yen and euro? Is this a graph of relative returns had one bought the S&P with their currency (yen | euro | usd)? Is this a fancy way of showing the changing value of currencies?

  15. Fred says:

    wnsfr…IPv6 idea? Sure…ever hear of CSCO?

    FYI (per BusinessWeek), there is a $125 Bill RFP from the government to upgrade our IP. ~g~ !

  16. Macro Man says:

    Investors are all over the world are reducing their home bias. It is not just Mrs. Kobayashi in Japan (who buys not only US equities, but NZD uridashis and emerging market equity investment trusts), but of course Mr. and Mrs. Jones, who put a record amount of money overseas last year. Hell, hardly a threat on this blog goes by without someone alluding to how green the grass is in on-US markets.

    Perhaps the real question is not, how will the US cope when foreigners pull their money out of US markets, but rather, how will foreign markets cope when American investors pull their money out (and by extension, how will the US cope with the stronger dollar that ensues)? This is more or less what happened in 2001-02, when despite 9/11, Enron, etc., the dollar strengthened and the SPX was less crappy than other markets.