Could Gold/dollar Rise Lead To Higher Stock Prices ?
7 replies to this topic
Posted 12 December 2002 - 11:02 PM
Could stock prices go higher at some point because of massive feed pumping and yankee dollah devaluation ?
It happenned in Argentina with the Merval going up 25% in a short time after the peso was devalued.
This would put the little lights out of shorts and put holders --- they'd finished --- forever.
Is there some point that Gold (please don't move this to the Gold forum just cause I mentioned the yellow stuff) will be a better and safer play than shorting stocks ?
Should I move completely over to gold trading and quit Mr Market altogether ? This is something I've been tempted to do for some time.
I'm having this sneaking suspicion that we're headed towards Wiemar II and one day us stock bearz will wake up and wonder what friggin planet we've been transported to.
TA guys like doc will rotate their little charts every which way and they'll never make sense again.
I'd appreciate your comments.
Posted 13 December 2002 - 02:40 AM
Go read my rant over on today's PMS Daily discussion. My point and I'm sure you'll agree is that the Alpha Play for the duration of this bear market is balancing a short US equity position against a long gold and miners position ie juxtapose long things against short paper then no matter what machinations they try with the $ they will fail to close the everwidening gap between real and paper. But the US isn't Argentina and when the US$ falls the best that can be hoped for in stocks is an improved competitive manufacturing advantage. But the lag is enormous. No, stay the course but play it from both ends. Play commodities, oil, or whatever. Go short stocks, bonds, the $. Play the cycles within.
I have many opinions; but I strive not to act on them.
Posted 13 December 2002 - 04:49 AM
Here's another way to look at it.
Scenario 1: Deflation. Al Green shuts down the presses. Money becomes scarce. Stocks fall. Bonds fall. Prices fall. Commodities fall. Even gold falls. What happens to the $? Well depends on what you compare it to but since all that stuff is falling, then must be up. In this case short stocks is a hedge against serious deflation, a scarce currency and lower gold prices.
Scenario 2: Inflation. Al Green charters helicopters and starts throwing bags of money out. Anybody with any sense will pick up the bag of money and immediately convert it into something with lasting value. The really smart will chose gold. The less smart may chose stocks. Gold is scarcer, it will win. In this case owning gold is a hedge against a corrupted and devalued currency.
I have many opinions; but I strive not to act on them.
Posted 13 December 2002 - 06:53 AM
I have this persistent daydream that the dollar takes off higher. There is no technical work I am aware of that supports this nor any funnymentals. Still.......
I imagine it happening because of some geopolitical/military events. What that would be exactly I can't say except for the vaugest outlines which I would rather not talk about. I will say I think, based upon no real evidence, that dollar strength is based in part upon our overwhelming military might, along with our control of the financial game itself.
If the dollar would break out to the upside you can bet your sweet bippy the equity markets would like it. The real economy? Well that's anothe story.
War is the last great hope of the incompetent to order the unwilling to attempt the impossible.
Posted 13 December 2002 - 07:32 AM
No No No, Hell No
Just an opinion but I don't see anything positive about devaluing the currency. Expenses could very well go up faster than revenues for many companies. The Fed could very well fail to inspire inflation where it desires it. After the Fed buys the stocks, bonds, or whatever they have no control over where the money goes.
I do think the goobermint will attempt to add value to stocks through some sort of tax cut. They are fools pissing against the winds of a perfect storm. If the mortgage refi game ends, the economy ends.
Posted 13 December 2002 - 08:24 AM
Massive feeding=higher inflation expectations=higher interest rates=lower stock prices. (I/R=V)
No matter, not to worry. The charts know all and tell all. When the market starts to move or change , the good TA guys will spot it first, because everything that goes on behind the scenes and in front of the scenes is all there.
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Posted 13 December 2002 - 09:39 AM
"Could stock prices go higher at some point because of massive feed pumping and yankee dollah devaluation?" - Dogboy
Dogboy - bro - you've outed yoself. So you're a switch hitter too! Welcome to the fraternity (or sorority).
What Doc says -- that inflating raises rates and brings down P/E ratios - is inescapable. The little bullish window is when the stock market's flush with liquidity, but before the bond vigilantes wake up and trash the bonds.
In the 1960s that took years. This time around, probably only a few months.
If you want to just close your eyes and be a dollar-cost-averaging buy-and-holder, gold is the new bull market. Owing to high volatility and overvaluation, the reward-risk ratio of the stock market is shitty, and probably will be for a couple of decades. Bear in mind that gold is quite volatile too, and probably should be mixed with some less volatile assets that furnish a yield.
"GOLD -- it's not just for misers anymore."
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Posted 13 December 2002 - 10:19 AM
Don't know if this might hold some of the answer to your question...
Six European countries devalued their currency in 1992, some of them after fighting hard to maintain strong currencies.
For five of them, the results were not good. For one of them (Britain), the results were very good (for the next 10 years at least ).
Prior to the devaluation, Britain's position was remarkably like America's now: massive house price inflation, massive stockmarket inflation, huge and growing trade deficit.
The big difference between Britain prior to devaluation and America now was that the UK govt raised interest rates for four years before dropping them and allowing devaluation.
Is there a sign for the US in this? Dunno. I don't know if the UK govt started pumping cash in after the devalulation. They don't seem to have been pumping cash in before it - money was very tight up until they devalued.
Also I think that raising interest rates like they did beforehand cleansed out a lot of excess - house prices collapsed and many jobs were lost. I doubt if the US will raise interest rates as savagely as Thatcher's govt. did.
So the following links look at the result of devaluation but don't really address the result of feeding cash in.
Clearly there's lessons in what happened in the past:
The problems of being a reserve currency:
Bit more political about holding currency up:
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