This video just got posted on youTube, but I could not agree more with Peter Schiff. I was going to write a post on the topic but it helps to have a CFA agree with your points. Why are stocks up during the horrible news we’ve had this week? Like I’ve been saying for the past month: the weak dollar. To understand the dynamic it is important to understand dynamics from an international perspective. The same argument for gold and oil, I’ve been proposing is the same one I’m proposing for stocks:
- A weak dollar with unchanged stocks means cheaper stocks for foreigners and their $2 trillion in cash.
- When stocks go up slower than the change in currency, the spread, or the difference between the currency devaluation and stock rise, is how much cheaper stocks are to foreigners.
- Fake catalysts are used as buying or selling excuses for foreigners to hide this effect, aka the IBM stock buyback program (I’ve studied buyback programs in depth: they are scams to longterm investors, pure robbery).
- Remember: to foreign investors there are two general components of investment return (the third is dividend yield but not important right now):
- Capital gains, which applies to US investors also.
- Exchange Rate, which only applies to foreign investors. Although paradoxical, if a stock declines by 5% but the currency appreciates by 10% you still get a 5.55% return, excluding transaction costs. Read the rest of this entry »