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Stocks and Currencies - 10/25/2008 6:51:18 PM

Kirata

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Since many Americans are concerned about their investments and asking questions about the market, I thought this might ease your pain a bit. It is in no way an attempt to minimize the seriousness of the present situation, but it will perhaps give you a view of the market that provides some perspective.

Anyone with a 401k or other investment portfolio happily watched its value rise until about the middle of 2007. Then things slipped, recovered, and slipped again, until by mid-January of 2008 you were distinctly not pleased. And then, things went downhill from there. This is the general synopsis based on the DJIA, and of course your personal experience will vary.

Here is the chart

Stock prices for Americans are denominated in dollars. When the value of a stock goes up over time, that does not necessarily mean that the real value of the asset is going up. The latter depends on whether or not you can actually buy more with that money if you sell the stock.

Another factor that affects the economy is trade, imports versus exports. When we are spending more on imports than we are earning on exports, we end up with a negative trade balance, which means money is flowing out of the economy. And every time the Fed has reduced the interest rate, the exchange value of the dollar slipped further.

During the time that your dollar denominated stock values were rising, the value of those dollars was falling. That nice increase you were seeing in the value of your portfolios was monopoly money. Take a look at how the DJIA chart (above) tracks with the EUR/USD exchange rate.

Here is the chart

Stocks are down, but the value of the dollar has skyrocketed. While the dollar denominated values of your stocks are lower, the actual value of each of those dollars has gone up. The reality is, you were neither making, nor have you lost, as much in actual value as your statement balance makes you think.

This is in no way intended as a whitewash. There are serious problems in the credit markets, and we are not out of the woods. But the sky isn't falling yet.

K.

< Message edited by Kirata -- 10/25/2008 7:04:54 PM >

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RE: Stocks and Currencies - 10/25/2008 8:23:22 PM

awmslave

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The dollar value change upwards is temporary. US government printing presses can not keep up with demand for cash. There is no real reason for strong dollar as US government defitsits are enormous and growing. If someone can take advantage of stronger dollar against Euro and British then do it now.

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RE: Stocks and Currencies - 10/25/2008 8:25:40 PM

Musicmystery

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Oh my.

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RE: Stocks and Currencies - 10/26/2008 5:51:32 AM

TNstepsout

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hmmmm interesting. Well it actually looks to me like overall that makes the news a little worse. If you bought in at the beginning of 2006 when the market was at aprx. 11,000, and now you are still in the market at aprox 8,500, you have lost aprx. 23% of your portfolio. In the same time the US Dollar has lost about a half a percent in value, going from .90 to .86 from 2006 to now.

What also worries me is that the dollar is generally increasing based on the decreasing of other currencies, not it's own strength.

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RE: Stocks and Currencies - 10/26/2008 6:29:52 AM

corysub

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quote:

ORIGINAL: awmslave

The dollar value change upwards is temporary. US government printing presses can not keep up with demand for cash. There is no real reason for strong dollar as US government defitsits are enormous and growing. If someone can take advantage of stronger dollar against Euro and British then do it now.

I think the reason why the euro has plummeted in the past two months is that international traders see Europe having even more difficulty than the United States. Some of the problems may be too big to save..an option that the U.S. seems to at least still have a measure of possiblity. So much of Europe has socialized important services and a weak economy is going to severely impact tax revenues and countries ability to pay costs, withhout "reflating"..ie, print money...as we are probably going to do here too...
Maybe none of us should keep currency..but buy gold, or "wampum"...When I was a kid I used to think how silly the native american indians were to use beads and shells as currency. Well, it seems the value of wampum has held up even better than world currencies..Go figure...

http://www.mohicanpress.com/mo08017.html
"It is interesting, if not ironic, to note that wampum remains valuable even today. A single wampum bead made from Quahog or Whelk, manufactured in New England coastal areas can cost up to $10! Overseas wampum is less expensive, but still demands a good price. Wampum, the first currency of the new world, has survived as a desired item long enough to be considered a classic."

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RE: Stocks and Currencies - 10/26/2008 6:49:40 AM

Kirata

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Well stocks are undervalued right now, which is why Warren Buffet is buying. Panic has ruled the market. But in June I paid $4.06 for a gallon of gas, and today I filled up for $2.29 a gallon. That's a little more than just half a percent improvement. It will be difficult for stocks to climb back up while the value of the currency in which their price is denominated is rising. And when the dollar settles at its new level, the credit crisis will still have to ease. But I don't think Buffet is wrong. As for the Euro falling, you're right. But that doesn't change the fact that we benefit from the improving trade balance.

That all said, I really don't want to come across as painting a rosy picture. I just think that the volatility and panic selling has gotten way out of hand, scaring people beyond reason and making things worse.

K.

< Message edited by Kirata -- 10/26/2008 6:51:17 AM >

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RE: Stocks and Currencies - 10/26/2008 7:05:46 AM

pahunkboy

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PEOPLE!

Hedge funds and others are bastardizing any currency possible in a last ditch effort to cut and run. New regs are coming- but the horse is out of the barn.

You can pay pal me on this tip- SILVER. There I said it. SILVER. Plot purchasing silver between now and JUNE 2009. From there the value goes up- due to inflation. Right now there is a massive sell off...so dont go by nows snapshot.

Try to get silver at spot. 100 ounces.

Do this right- and you could pay off your mortgage with it later.

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RE: Stocks and Currencies - 10/26/2008 7:40:44 AM

corysub

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quote:

ORIGINAL: Kirata

Well stocks are undervalued right now, which is why Warren Buffet is buying. Panic has ruled the market. But in June I paid $4.06 for a gallon of gas, and today I filled up for $2.29 a gallon. That's a little more than just half a percent improvement. It will be difficult for stocks to climb back up while the value of the currency in which their price is denominated is rising. And when the dollar settles at its new level, the credit crisis will still have to ease. But I don't think Buffet is wrong. As for the Euro falling, you're right. But that doesn't change the fact that we benefit from the improving trade balance.

That all said, I really don't want to come across as painting a rosy picture. I just think that the volatility and panic selling has gotten way out of hand, scaring people beyond reason and making things worse.

K.

I think you are correct regarding the volatility and panic selling. In addition, a great deal of the selling on trading desks is not based on fundamentals as much as just "must sell" order by mutual funds and hedge funds who are suffering redemptions or bank lending windows being closed. Buffet is right..but Buffet also has the capital to wait out the storm. I think the GE he invested in..on damn good terms, btw, is probably a better buy at $20 or $21 on the way up when the market does turn, than at the current price of around $18. The most dangerous thing to do in a market is to "try to catch a falling knife"..Another cliche..."let the trend be your friend"...is also a pretty good idea, I think.

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RE: Stocks and Currencies - 10/26/2008 8:18:02 AM

Kirata

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Inflation will drive stocks up too, of course. But you're right that silver has more potential for gains measured in multiples of your investment. The current spot price is down, like everything else right now, to about $9.40/oz. That's a fall from around $19/oz in July and its peak around $21/oz in March. The potential is obvious.

Historical Spot Silver

K.

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