SocGen & Doomsday predictions

Discussion in 'Economics' started by pak, Nov 21, 2009.

  1. pak


    I keep reading about these doomsday scenarios with gold +, Stocks -, crude -, and the dollar-.

    What I don’t understand is it appears when the dollar gets strong the market goes down-so how can the marker crash if the dollar crashes with it? A disconnect comes later? Or could the world somehow panic to believe in the dollar instead of their own currency (keeping the long bond up)?

    Does this mean the doomsayers believe their will be a disconnect and everything goes down except gold? Which one is it?

    Anyone have a comment/opinion?
  2. i don't know if i fully understand your question. i will try to give a comment though.

    when the dollar falls gold rises because people are scared in relation to the stability purchasing ability of the currency. the stock market rises when the dollar falls because the other countries can purchase dollars thus goods cheaper.

    the two are not directly connected. they are built on two different assumptions. the parties that buy stocks and gold are not necessarily the same people. some people will have faith in the dollar and believe the economy can pull through and a depreciation will enable trade, other believe the currency will collapse.

    regardless gold is a medium of exchange or at least a store of value when the dollar falls the desire to hold another asset that retains value ascends. you have to understand people think different things and that is what makes the market unpredictable.

    like i said some think the dollar will crash and other that it will pass. the point you make about the correlation and a disconnection imo is bogus. the connection does not exist in the first place.

    think of it more of the logical decision to maintain wealth. nothing more. people are acting in there best interests based on what they believe and peoples beliefs differ.

    the decisions and thus the market movement are not based on that contrived thought. that is why it is a market.
  3. pak


    Thanks for your explanation...
  4. That is one explanation, but not the only one. The stock market rising and the dollar falling can also be an indication that there is increased appetite for risk, and therefore those who had previously cashed out and went to dollars as safety are exiting and looking to get back into the market. This has been the prevailing argument for negative dollar/positive DOW correlation over the past year and a half.

    A more specific picture of that argument would be that the dollar is falling because of the carry trade, where by dollars are being borrowed at ZIRP, exchanged for higher yielding currencies, that are then invested back into other assets, such as equities markets.

    While we all can see the dollar is being devalued, and that gold is becoming an appealing store of wealth and safety vs. the dollar, there is still evidence that the dollar will hold appeal as a safe haven for wealth. This is because when other assets begin to fall, like the equities markets, most market participants will exit from the market and run back to the dollar.

    How can the two theories be right? Easily, if you believe that the dollar still holds a strong short term safety value, while gold holds a stronger long term store, especially vs. the dollar itself.

    Just food for thought. There are more than a few ways to interpret these relationships, which is why not everyone is in agreement.
  5. Well...if you have hyperinflation (dollar getting weaker) that should mean that the stock market will keep going up. Of course, if the dollar becomes like zimababwe dollars, alot of companies that are traded on the stock exchange will go out of business if they are not bringing in the money fast enough, hence their stock prices will go to zero.

    Dow Companies like WMT will go under because nobody has money to buy their products anymore and WMT wont be able to raise prices fast enough and keep pace with increasing employee wages for them not to quit because they are just too big.

    VZ will also go under because most of the US is on some kind of cell phone contract subscription so their prices will not be raised until their subscriptions are done and verizon has too many employees to pay. They will fall apart.

    Hyperinflation will cause alot of cutbacks at alot of companies. The stockprices will rise for the ones that survive, but in relation to gold, they will diverge further.
  6. No pak, it says YOU will need to make an interpretation!!! Yes, I know that is hard - I AM NOT MOCKING - just stating! YOU will need to decide what the price of gold and what the markets are doing has a meaning to you...and you will have to decide what it means! We are all in the same boat! Take courage - make the decision about what it means to YOU!

    What would a gastropod post without some stupid music video post be :D Even if you don't like the tune - just remember - that is the "financial capital of the world" - well, at least the largest banking center in the world!!! Better part of vid kicks in at 4:49!