Fellow Board Members,
Last week we received a contrarian signal when the Washington Post finally discovered the appreciating dollar and published a related article on the front page. This does not mean of course that the dollar will suddenly stop appreciating and hitting new highs. However, often the standard media devote front page or cover articles to important trends or events around the time that the trend has begun to reverse (or flatten) or the impact of an event has already been felt.
This week oil also hit a new multiyear low and the 6- and 12-month changes in the producer price index hit new recent 6-month lows. The strong dollar opposes export growth and therefore is bad for the economy and the stock market,at least in the short term. This seems paradoxical in some regards and so I would not expect everyone to agree -- especially conservative politicians. However, in the past, professional traders have traded stocks to move against or opposite the trend in the dollar.
If the economy continues to strengthen and the Fed raises interest rates, a conventional expectation would be for the dollar to strengthen further. The recent resistance to increasing stock prices might be evidence that the markets are anticipating a change in Fed policy toward tightening. When the Fed finally does increase interest rates and "the news" is out, stocks might actually trade up. I am not betting either way, but I am ready to reduce my holdings in stocks if short-term rates move quickly significantly higher.
Good luck,
Tex
Posted by: mrweyl@hotmail.com
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