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inthemoneystock (< 20)

Choose: Stronger Dollar Or Higher Markets

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May 11, 2011 – Comments (4)

Politically it is a tough decision. What will get you re-elected? What is best for the American people in the short run and long term? A higher stock market or a stronger Dollar. Very few average Americans understand that we cannot have both. The stock market moves 100% inverse to the stock market. Dollar up, market down. Dollar down, market up. Today, the stock market is slightly lower with the SPDR S&P 500 ETF (NYSE:SPY) trading at $135.28, -0.59 (-0.43%). Why is the market lower today? The Dollar is rising. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $21.47, +0.09 (+0.42%).  Please recognize that the percentage the Dollar is up, is identical to the percentage the markets are down.

The Federal Reserve has wanted a weak Dollar policy since this crisis began. In fact, even far before that. The weaker the Dollar the higher exports. Trade balances adjust and overall it is a more even playing field for the United States when it comes to selling and buying goods. In addition, more recently the Federal Reserve found that they could manipulate the stock market by pushing the Dollar lower. Ben Bernanke has fought long and hard to put into effect his thesis paper from way back in the day. This thesis basically said, to create a recovery, the powers that be must make people believe there is a recovery, then it will happen. Essentially fooling the average American. While in theory this may be something to like, reality happens to have consequences.

While dropping the Dollar and pumping trillions of Dollars into the economy helped in the short term, the questions remain whether or not the recovery will last. In addition, as commodity prices surge, the average American struggles to pay for food and energy, has a weaker Dollar really helped? In addition, is the weak Dollar policy, which is forcing the markets higher, really helping? In reality, a higher stock market and weaker Dollar helps those who invest heavily. The richer Americans do not care much if food and energy costs go higher as they can afford it. In addition, as long as they are invested, the weaker Dollar drives up equity prices, thus offsetting the rising cost of good for them.

On the other hand, the poorer Americans are getting the short end of the stick. Not only do they not have significant investments, or even any investments but the rising costs of food and energy of creating a catastrophe. Bottom line is this. Who is this policy really helping? Is it just another way to enlarge the gap between rich and poor? What is better? A weaker Dollar for exports and the market or a stronger Dollar for the average American?

Gareth Soloway
InTheMoneyStocks.com

4 Comments – Post Your Own

#1) On May 11, 2011 at 12:36 PM, mtf00l (44.70) wrote:

It's kind of part and parcel...

By "leveling" the playing field American workers will soon be working for a dollar a day.

Who does this benefit? Since politicians have only to worry about getting elected now they need only worry about corporations and individuals financial support at campaign time.  The individuals referred to in the previous sentence are not workers. 

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#2) On May 11, 2011 at 1:35 PM, miteycasey (30.51) wrote:

What is better? A weaker Dollar for exports and the market or a stronger Dollar for the average American?

I think we've seen the answer to this question.

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#3) On May 11, 2011 at 1:52 PM, leohaas (32.07) wrote:

Well, the markets don't exactly move in inverse lockstep with the dollar. There are other factors influencing the market.

But to answer your question: a weaker dollar. Isn't that what the FED is doing?

A weaker dollar is how we will pay our debt.

A weaker dollar will strengthen our exports.

A weaker dollar will make imports more expensive, and products produced in the US relatively less expensive, thus bringing back jobs to the US of A.

A weaker dollar will make oil a lot more expensive. This will save us from ourselves.  Imagine the alternatives that will be developed here! Imagine us no longer needing to import oil from countries where they HATE our guts. Imagine us bringing home our brave men and women in uniform, since they no longer need to "protect our interests".

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#4) On May 11, 2011 at 3:53 PM, traderbach (< 20) wrote:

leohaas

Well said indeed!   It seems to me also that the weaker dollar for the foreseeable future is the only way to go right now for the reasons you so clearly stated, more exports, less imports, and a good way of reducing our debt by, in real terms, paying less for it.  Apart from that it's nice to hear some really common sense about our geopolitical  stance.  Why are we not completely focused on energy independence as a national security issue!?  Duuuhhhhh!   Plentiful clean energy means removing the necessity for most foreign entanglement & thence the saving of so many American lives & a return to a strong, healthful & thriving America.  The alternative, as we are now seeing is a lurch towards feudalism, the antithesis of the American Dream.  Experts have been telling us now for 50 YEARS that resources are running out & that the degradation of the environment will eventually become the most dangerous threat of all.  It is tragic that instead of taking the lead early on in the field, & thus retaining American world leadership, those who make the decisions have brought us to this desperate impasse where we have to even debate which option is better 'the frying pan' or 'the fire'.  The very least that can be said is that it is unspeakably incompetent business planning from the country that the world looked up to for it's business model.  I think it is still not too late for America but looking at the inability of the politicians to make decisions for the American people rather than for their own job security & corporate pensions I am pessimistic about the existence of their will to make the intelligent changes that are required.

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