Posts filed under “Investing”

Bullish on the Dow?

According to Merrill Lynch’s Richard Bernstein, the Q4 rally in stocks was deceiving. As reported by Minyanville’s Kevin Depew, the 2006 Dow rally is Euros was far more subdued:

"According to Bernstein, many of the recent rallies in various asset classes are a form of "money illusion." For example, the fourth quarter rally in U.S. stocks was almost entirely due to this kind of illusion. Bernstein writes that when priced in Euros the Dow peaked in October and… you might want to sit down for this… was actually down in the fourth quarter. The nearly 16% rise in the Dow last year was actually only about 4% priced in Euros, he notes.

Eh, so what, you might say.  I get paid in dollars, I buy in dollars, so dollars are all I care about. That misses the point, Bernstein notes.  Each dollar you get paid in buys less and less as the currency declines. Let’s put it another way.  Step back for a moment and think about this: when a currency declines so does ones standard of living."

Call it "the race to the bottom:" When a debtor nation reaches a perceived point of
no return, they devalue their currency. Their exports become more
attractive, tourists come to that country (and go shopping), the repayment of debts is done not for literally 50 cents on the dollar, but paying back  with dollars that have become worth far less than they were due to the devaluation.

Bernstein is late to the party on this one: You can show any index is up or down, depending upon how you price it: Dollars, Euro, Gold.

But I am not sure just how much insight pricing the Dow in dollars provides, if any.

These relative comparisons have been around for a long time. Why stop with the Euro versus the dollar? If you follow Bernstein’s logic to its logical extreme, then the Dow Industrials, priced in Gold, is actually down since 1999.

As we noted last year:


Source:  Chart of the Day

Bottom line: The big question this raises is, given these Euro based returns, will it impact the US markets ability to attract overseas investments? Other than that, the brouahaha about Euro-based returns are mostly noise…

Do My Eyes Deceive Me?
Kevin Depew
Minaynville, Jan 05, 2007 10:42 am

The Illusion of a Rising Dow
Peter Schiff
January 14, 2006

Category: Currency, Investing, Markets

NAR: Home Prices Seen Rising in ’07

Category: Data Analysis, Investing, Psychology, Real Estate

March 2003 – January 2007 Dow Gains

Category: Investing, Markets, Psychology, Technical Analysis

Phantom Rebound in the Housing Market

Category: Consumer Spending, Investing, Markets, Psychology, Real Estate

March 2003 – January 2007 Nasdaq Gains

Category: Investing, Markets, Psychology, Technical Analysis

Yield Curve: Its different this time

Category: Data Analysis, Federal Reserve, Fixed Income/Interest Rates, Investing, Psychology

Insider Selling

Category: Corporate Management, Investing, Markets, Psychology

Real Estate and the Post-Crash Economy

Category: Economy, Employment, Investing, Markets, Psychology, Real Estate

Nasdaq Trend Break

Category: Investing, Markets, Technical Analysis

What are the Metals Telling Us?

Category: Commodities, Economy, Investing, Psychology, Technical Analysis