Equity indicies normalized for the dollar?

Discussion in 'Economics' started by eMiniFreak, Sep 29, 2010.

  1. Perhaps a dumb question, but I specialize in those...

    When we see $SPX at 1148, is that number already normalized for the value of the dollar at that moment?

    In other words on two different days (day1: DX == 95.00, day2: DX == 80.00) if $SPX is 1148 on both days, is the market value truly equal on day1 compared to day2, or is it actually worse on day2 (b/c of a weaker dollar)?

    Is this true for all indicies (dow, nasdaq, S&P, etc...)?
  2. How about the value of s&p in gold?

    I am to lazy to check the charts right now but roughly the gold went up 5 times while the s&p is the same. So in gold the s&p is about 225 points

    Do you think that a global solid company should cost 5 times less in gold than in 2001?

    What is the reason for that? Is it that the company is producing less? Is it the the future evaluation is 5 times lower? Is it that the gold was undervalued before?

    P.S. My theory is that the reason is fear. In a normal market investing in a vibrant company will be much more attractive than gold

    So, sell gold and by S&P
  3. If the S&P500 was normalized, there would be outrage. Best to keep the general public glued to their idiotic programs because given how "Evolution is a myth because monkeys don't turn into people," there is no telling what may happen.
  4. Well, I'm not terribly interested in comparing with gold... nobody uses gold as a real currency of exchange in business... the dollar is lingua franca for the moment... besides the value of gold can be much more buggy and speculative than the dollar.

    Let's use real numbers for $SPY and $DXY... and I chose 2002 because there was a time then when $SPX was roughly the same value as today.

    $DXY_2002 == 115
    $DXY_2010 == 79
    Source: http://www.barchart.com/chart.php?s...ddindicator=&submitted=1&fpage=&txtDate=#jump

    Hypothesizing that...

    $DXY*TrueValueFactor = $SPY


    TrueValueFactor_2002 = 1080/115 = 9.39
    TrueValueFactor_2010 = 1080/79 = 13.67

    So assuming my relationships are linear and correct, this might imply that the S&P is 50% overvalued today compared to 2002 (due to the weaker dollar).