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zaroth

Interesting to note that dollar adjusted the market has actually been going down for months.

http://ei.marketwatch.com/Multimedia/2017/10/04/Photos/NS/MW...

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Yeah, the performance of the dollar ate away nearly all my profits globally invested.

Exact opposite for me.

Can you explain this a little more? I don't quite know what dollar adjusted means.

It means adjusted for the changing value of the dollar (the currency the assets are priced in).

If I understand right, this is basically merging s&p 500 [1] and dollar value index [2]. The value of the dollar has been dropping all year, at a higher rate than the value of the s&p 500 has been going up.

Basically, the market's dollar denominated value is going up, but dollars are becoming less valuable. This combines to mean that market value has actually down this year, not up.

Perhaps op can correct me on anything I got wrong.

[1] http://www.marketwatch.com/investing/index/spx [2] http://www.marketwatch.com/investing/index/dxy

Yes, and as a European, this is very visible in my portfolio. S&P 500 ETF is the worst performing part of my savings portfolio, when nominated in euros. China, Nordics, rest of the Europe & emerging markets are all doing fine.

Of course, the falling dollar price benefits US exports in the future, so it could be a good time to invest in US, now that it has been performing less stellar compared to the rest of the world.

But you would certainly like to have some kind of explanation on why the dollar is so weak before calling this a good time to invest? Like - what exactly is going on over there?

The US economy seems to be less dependent on exports as other countries, and the fortunes of US (tech) companies seem to hinge on other things than exchange rates.

That is very true. And in general, contrary to what Wall Street at least used to think, I think Trump administration will cause damage in the long run for the US economy, especially if he is re-elected.

OTOH, the US economy is very dependent on one special "export": dollars, which for now the rest of the world accepts to sell goods on credit (see negative trade balance). If the dollar continues to devalue, this mechanism could break at some point.

Being in the UK, witnessing the pound devalue massively, my S&P investments have done stupidly well. As have my Japanese index investments. And my European index investments. Global index investments. If I thought the UK was going to sort itself out, I might sell off some of those and put them back into pounds.

That I blew most of last month's pay on European indices suggests I think the Maybot and chums are not done wrecking the UK yet :)

Interest rates likely to rise soon, so pound will likely strengthen.

Interest rates likely to rise soon

I keep hearing that, over and over, for years and years. Eventually it'll be true.

Well I'm just going on what the governor of the Bank of England says, but what do I know eh?

'In the clearest indication yet that there could be a rate rise as early as November, Mark Carney suggested that it was time for the bank to "ease its foot off the accelerator".'

http://www.bbc.co.uk/news/business-41439349

Mark Carney is a tease. He says that over and over again. Year after year.

http://www.telegraph.co.uk/business/2017/09/14/bank-england-...

Perhaps easier to conceptualize in Europe indices. Imagine European stocks go up but so does the strength of the euro vs the dollar. You, as a US resident (ok presumably) wouldn't be realizing those stock gains on the top line numbers because when you sell the position and convert back to dollars, the worse FX rate erodes your returns.

When OP talks about dollar adjusted returns of S&P, an analogous mechanism is at work.

I think you meant that European stocks go up, but the euro goes down.

oops you are correct!

The real value is the nominal value adjusted for the rate of inflation (using an agreed definition of inflation and against some agreed monetary base - see M0, M1... and other types of monies)

Inflation means the purchasing power of the unit of currency is reduced. iirc it was Keynes who noted that government financing can utilise the margin between real and nominal values, with the benefit of also maintaining animal spirits (bullishness/confidence) as the public sees only price. For economist perspectives: Paul Krugman's blog elaborates on this in a readable way. Mises.org provides one critique. David Harvey another. Dan Amerman provides an CFA/investor perspective (http://danielamerman.com/va/Dow36.html)

The graph linked to above could be viewed as a decline in real value of equities - or the value preserving market response to inflationary pressures (with some degree of non-market support)

The combination of inflation and tax rates is important to understanding the interplay between government, markets and the wider economy. Which is the dog and which the tail is a moot point. Not endorsing, and not by any means the last word, but David Graeber provides an alternative starting point before exploring further: https://www.theguardian.com/commentisfree/video/2015/oct/28/...

Very interesting. I watched the video; the flaw there is that, to simplify things, it doesn't consider international trade and capital movements, which make the "simple matter of mathematics" not such a simple matter at all...

I also read the Amerman article now. His analysis completely forgets one very important thing: stock dividends, which are also higher during periods of high inflation, and compound if you reinvest them. I didn't run the math, but that would for sure change the results a lot.

http://www.multpl.com/s-p-500-dividend-yield/table

Agree on the oversight. From his CFA perspective (which I'm not in any way), divs are somewhat diminished in the new normal (as your link shows), and minority of companies account for the majority of divs. Of course, fiscal policy also impacts div gains. Double whammy. Creates a great climate for the development of productive assets, rather than resting on protective assets.

But the "new normal" includes very low price inflation, while his analysis is based on a period of high inflation and high dividends. With that overlook, his predictions look very shaky to me.

Why isn't this getting way more attention? It seems fundamental.

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