|Click here for a live and updating version|
The notion that in order for equities to rise, the dollar must be falling and vice versa, is actually a total myth. As the chart below shows, over the past 6 years, equities and the dollar actually moved in tandem half the time and move inversely half the time. They can both move in the same direction whether both are going up or heading down.
Between 1995 and mid-2000, the dollar and equities moved up and down together like they were joined at the hip. Mostly up. It was a different world back then. At that time, the US economy was truly growing on its own merits as opposed to today when growth is due primarily due credit expansion. Where is the once- gigantic American manufacturing base? Offshore, that's where. So the solid link between equities and the dollar that had them running solidly in tandem was broken for good back in 2000. Ever since then it has been a hit an miss affair. Is it any wonder that year 2000 also marks the huge systemic change that occurred when money flows began to accelerate into commodities rather than into stocks? Not at all, since year 2000 also marked the beginning of a dozen straight years of incredible credit expansion (dollar destruction). As detailed in this article on the CRX, the commodities stocks started on a run that saw them rise 100 times as much as the broader S&P did over the next 12 years. It's no coincidence that the same type of study that compares the price of oil to equities shows the exact same phenomenon surrounding the year 2000. It is no coincidence... year 2000 was a turning point in global economic history. That is the year that truly marked the beginning of our current long term cycle phase lower, not 2007.
|USD MONTHLY - notice the dollar and equities rising together for 6 straight years, ending that solid relationship in 2000. Obviously this chart doesn't move much but you're welcome to check out the live version.|