Thursday, September 24, 2009

The buck is burning. That's great for stocks -- for now


Run for your lives! The buck is burning, the greenback is crashing, the almighty dollar is in danger of going the way of the British Pound as the world's No. 1 reserve currency.
Or so say the dollar doubters. Are they right? Only time will tell, but the foundering dollar is having a very salutary effect on equities -- at least for now.

The U.S. Dollar Index, which measures the greenback against a basket of six major currencies (you can see the related exchange-traded fund here UUP), fell to a one year low ahead of Wednesday's Federal Reserve meeting. Little wonder there. As long as the Fed continues to print money through a zero-interest-rate policy and so-called quantitative easing, the U.S. continues to run a big trade deficit, and other nations move their foreign exchange reserves out of dollars, the buck has no place to go but down.

That's great news for gold bugs and commodity traders. Anything denominated in dollars, like gold and oil, goes up when the greenback falls.

Of more importance to retail investors and their 401(k)s is that a soft dollar boosts stock prices. There's a simple explanation for that: 50 percent of the S&P 500's revenues and 40 percent of its earnings come from foreign sources -- so a weak dollar bodes well for both top- and bottom-line corporate performance.

The buck is burning. That's great for stocks -- for now

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