Over the past few months, Wall Street's favorite watering holes have served up a deadly "stocktail" -- the Un-Surely Temple. Includes: a splash of fear, a dash of uncertainty, and a steady flow of extreme volatility. For those who partake, the hangover only gets worse.
Case in point: The seemingly "abnormal" behavior of the U.S. Dollar index of late. According to the mainstream experts, currency markets move in sync with the overall economy and stock market: bullish news begets a stronger dollar and bearish events, a weaker one.
This July - August, in fact, as the U.S. dollar was circling the drain of a lifetime low against the euro, the powers that be drew one conclusion: If economic conditions continue to worsen, it's more bad luck for the buck. On this, the following news items from the time say plenty:
- "Dollar's Reign Coming To An End?" (Tehran Times)
- "US dollar sank to a new low as markets warned about the ongoing US lending crisis and state of the country's economy." (AP)
- “History shows a strong and consistent correlation between weak currencies and falling stock markets. Weak currencies are a symptom of a deeper problem…that reduce the attractiveness of equities.” (CNN Money)
Yet -- by every measure imaginable, the U.S. economic crisis escalated further, alongside a gut-wrenching 30%-plus sell off in the Dow Jones Industrial Average to a five-year low. ALL the while, the U.S. Dollar broke out of its sideways crawl to enjoy a powerful RALLY to two-year highs.
Truth be told, there’s nothing “head-splitting,” “anomalous,” or “frustrating” about the dollar’s uptrend in the face of a falling economy. At its onset, the August 2008 Elliott Wave Financial Forecast set the stage for a meaningful change in the currency’s bearish tone and wrote:
“As gold declines, the euro should follow and the US dollar index, the near mirror-opposite of the euro, should rally. Sentiment is just about right for this combination. The dollar is heading higher.”
The 30% sell off in gold to a 13-month low AND U.S. dollar rally to a two-high since then speaks for itself.
Before you drink of the cup of mainstream economic wisdom, check the facts: Over the past four years, the relationship between the greenback and the leading blue-chip stock index has been anything BUT consistent. To wit:
January 1, 2004 to December 31, 2004: The U.S. dollar plunges 36% against a basket of the world’s leading currencies to a then, lifetime low. Meanwhile, the Dow Jones Industrial Average undergoes a sideways-to-rising trend.
January 1, 2005 to December 31, 2005: The dollar enjoys a powerful, 15% rally to multi-year highs. Over the same period, the DJIA endures a steady crawl to end nearly unchanged for the year.
January 2006 to March 2008: The dollar resumes its downtrend, plummeting nearly 40% to a new, historic low. All the while, the DJIA rejoices a record-shattering winning streak to a brand new, all-time record high on October 11, 2007.
March 2008 to October 2008: DJIA plunges to five year low, greenback rallies to two-year high.