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Black or White? Gray!



I just wanted to very briefly touch on the weaker U.S. Dollar.

In a world where investors are focused on "operating earnings," I couldn't believe I heard someone suggest on the radio that while "operating earnings (for a multi-national) should be flat," he would still buy the stock "because of the favorable currency translation." HUH?!?!?!? Remember, this is the time to do your homework and find out how much currency moves or price increases are impacting earnings vs. REAL demand.

There have been times where a declining currency helped stocks follow suit... but there have been times where it hasn't mattered much. A weak currency doesn't equal weak stocks. Again, it doesn't help in an already uncertain economic picture, but it isn't a given either. Including the current instance, the U.S. Dollar Index has declined by more than 15% four times since 1989, (using month close numbers). Here is are the stats:

Dates of Decline Dollar Decline SPX Response
(peak to trough)
05/89-01/91 - 20% +7%
06/91-08/92 -18% +11%
12/93-07/95 -16% +20%
02/02-05/03 -20% -18%

As you can see from the above table, a prolonged decline in the U.S. Currency isn't a given. Believe me I know that those periods were not post-bubble market, but in a world where everything is spoken of as black and white, this proves things can be gray.

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