The Dow Industrial Average has rallied from 6,500 to just over 10,000 in a matter of months. Great news right? Maybe not if you consider at what expense, literally.
In my view the US economy is like a large aquarium. If you lean it in one direction the level may seem like it is going up on one side, but it is always at the expense of the other.
This stock market rally (Since March 2009) is undeniably at the expense of the US Dollar. Every time the dollar is weak the Dow is strong. This weakness in the dollar causes commodities to go up and US buying power to go down. So if the Dow manages to soar another 50%, don’t be surprised when your cost of living soars with it.
The famed “Dr. Doom” Nouriel Roubini has been expressing his concern over the “carry trade” where investors are borrowing dollars (shorting) and buying commodities. Many asset managers of recent have referred to the short dollar trade as “crowded”. This “rally” seems more like a another misuse of leverage. Looks like Wall Street gave up drinking by switching to beer.
Dow Industrial in red and US Dollar in green
Tags: Commodities, dow, dr doom, wall street
