EurosThe data in the commonly available time series for stock prices and most economic statistics are not adjusted for any fluctuations in the exchange rate of the U.S. dollar. The series for "real" economic measures do make valuation adjustments for inflation using the CPI and PPI, but even those "real" numbers are not adjusted for the dollar's changes in value. The nominal value of the S&P 500 suggests that we have yet to see the equity markets fully discount the carnage. However, when the S&P 500 Index is adjusted for changes in the dollar as measured by the Federal Reserve Major Currency Index, it is hard not to see the blood as already flowing. The dollar-exchange-value adjusted S&P 500 is now only 10% above its low at the end of the last bear market (3/3/03). The adjusted index is down 43.2% from the bubble high (8/30/00) and, even worse, it is off 27.3% from its 12-month high on May 29th of last year and down 19.15% over the last 3 months.





Speak your mind

1 Comment so far

  1. George Parkanyi on March 18, 2008 11:12 pm

    I’m fully invested now (long), and as I look around in awe I feel like a kid in a candy store. There are so many wonderful bargains just lying around on the ground to be picked up, and if you take into account the U.S. dollar as Stefan has done, foreign investors would be crazy not to be diving in and buying (good quality) U.S. equities.

    Maybe they are. The Proshares 2x leveraged financials ETF (UYG) has had a massive surge in volume over the past few days. And why not? - it represents a basket of financials; not just one stock, eliminating single-stock blow-up risk. It’s a relatively safe way to play heavily hammered and US-dollar discounted financials. The rebound should be sharp when it happens, and with the leverage you’ll get a really nice gain. Even after today’s big jump, I think you have a great risk-reward profile here. 50% to 100% is a reasonable expectation against another 10-20% of downside risk.



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