That many believe the dollar is in for a fall should urge you to at least look "au contrare".... That maybe in fact it will head to 125 - 130 zone.
But let us suppose for a moment that Roach is right and the dollar will fall. So what. As robert furman's post has suggested, this is not in and of itself bad for the stock market or multi-national corporations.
In fact, it is great news for all the US MNC's that make up the bulk of the DOW and a decent portion of the SPX. It will give them a better comparative advantage to compete in the world economic arena against foreign corps.
When the dollar falls, U.S. companies that derive a significant portion of their earnings overseas tend to experience an earnings boost, since their foreign customers are paying in money that's worth more when converted back into dollars. For the largest 100 companies in the S&P 500, if the dollar was to fall by 10%, it would boost earnings by approximately 5%.
Bulls contend that a lower dollar will in fact be bullish for US multinationals as their respective product prices will be more competitive overseas - and thus boost earnings.
Bears believe the weaker dollar will push interest rates and inflation higher - making those same earnings worth less as you discount future cash flows at a higher interest rate.
The problem with the Bear argument is that interest rates are already near historic lows. And any marginal increase in rates relative to the past several years will not dampen a rising stock market. On the contrary, it will suggest that the fed has in fact successfully done its job in navigating the US out of recession back to growth instead of depression. This growth outlook will pave the way for higher projected growth rates looking out over the next several quarters. And guess what, earnings will start to be revised UPWARD within two quarters and this will lay the groundwork for the MELT-UP into 2003.
Sorry, no soup lines, no end of the world, no depression. The US is no longer a manufacturing economy but a service economy. It is a guerrilla market economy that thrives on small business and entrepreneurial spirit. But the big MNC's will be big winners as well in this next leg up if the dollar does indeed decide to fall.
The market is ready for another leg up, and we will see SPX 1,200 minimum upside by the end of May.
Best Regards, J.T. |
