The so-called bearish market is not synonymous with a rising dollar. Imagine yourself as an international investor. First of all, rising dollar is not a sign of a weakening equity market, like, look at Japan - its the weakening yen and a weakening market, so same is the case with Rouble, and most of Asean countries, weakening markets are associated with weakening currencies. Since the last two years, rising dollar has been associated with this bull leg.
In `96 we had $ against Yen at 107, so you can imagine what kind of productivity increases have been incorporated in US corporations that US products, domestically and internationally, have been able to match the production of countries having cheaper currencies. This can only be possible in corporates where top-line increases are matched with the margins, rather, the margins have been improving inspite of the rising currency.
Coming back to my argument about you being an international investor - a rising dollar is in itself an insurance against bear markets because even if there is a protected bear market, a rising dollar is an automatic hedge. So, for example, a German investor fully invested in the US has seen this 10% Dow correction, correspondingly has also seen a 6% appreciation of US$/DEM, so basically, in his own currency, he's hedged.
Secondly, the dropping bond yields reduce the cost of corporate interest and as such help corporate profits. I had a few days ago posted the relationship between S&P earnings and bond yields. At 5.5% yields, the market is slightly overvalued by 5%, but considering that global capital is an orphan capital searching for solid homes, a market like US is, after the bond, a safe haven. So you will see that even in these wild fluctuations, the trend of the market will remain intact and that is what the bears fail to realize. These are market realities and the bears will not comprehend this.
(Typed as dictated by Ike) |
