The Inverse Correlation of Stocks and the Dollar

We’ve been talking about this for months… effectively all the stock market (commodities as well) has become is “do the opposite of the dollar”. Dollar sinks = buy anything (almost daily)… and vice versa (rarely). It doesn’t work every day, but if something works 80% of the time in markets, it’s akin to a gold mine. [Jun 30, 2009: Bloomberg – Correlation Among Asset Classes Highest Ever]

Courtesy of Clusterstock we have a chart to show this inverse correlation – the time line is relatively short, but you can see (if you are an American) reader as your purchasing power goes down, your stocks go up… you really don’t win in real terms, but since most Americans only live in a nominal world they feel better about what is going on in the country. There is a silver lining to having a complete lack of financial education in our public school system (by design?)… it’s much easier to deceive the masses on what “prosperity” is.

As one of our readers has been pointing out the past 48 hours in the comments section of our posts – now that we’ve “restreched” the rubber band back to the complete inverse of where it was nearly half a year ago, it will be interesting to see if we “snap back” … or if the Federal Reserve has the power to completely break the rubber band.

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Meanwhile, David Malpass tries to explain to those who cheer the dollar’s demise as “helpful” to the US economy in the near term that this thinking is akin to all that dominates American solutions nowadays … kick the can. Worry about the fire in the couch you are sitting on while ignoring the minor issue that the entire house is burning down. Forest. Trees.

About Mark Hanna 543 Articles

Affiliation: Hanna Capital, LLC

Mark Hanna is President and Owner of Hanna Capital, LLC, a registered investment advisory firm. Mark has been a follower of markets since the late 80s, with a focus on individual equities since the mid 90s. He has been a well known commentator in the financial blogosphere for the past 5 years, following a career in corpoporate finance and accounting. Mark attended the University of Michigan where he graduated with a degree in Economics.

As an avid reader, Market Montage is the personal blogging site for Mark to share his views on economics, markets, and the like. Occasional cynicism and wit shall be deployed in his postings.

Follow Mark on Twitter @fundmyfund.

Visit: Market Montage

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