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Stock Market vs. Currency Inflation

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DAX - Currency Inflation


Hello Marty

Great conference!

If the EM Debt implodes wouldnt the stock markets of those counties rise??

If the stocks from the EM markets did rise would they rise faster than the decline in their currency to the USD??



ANSWER: Yes. Normally we experience currency inflation, which is the rise in assets in proportion to the decline in the currency. If we look at the DAX on a yearly basis from the U.S. dollar perspective, you will begin to see the impact of currency. Most people think that the DAX has outperformed everything, but that is purely in nominal terms for the DAX has risen in proportion nearly to the decline in the euro.

The “international value” perspective of the DAX clearly shows that the major high was in 2000 when the euro peaked against the dollar. We saw a major crash into 2003 when foreign investors fled Europe. As the euro crisis materialized, capital migrated to Germany from all over Europe as the hedge against the collapse of the euro.

The DAX is rising primarily because of the currency; not because of a rosy future outlook for the European economy as a whole.

We will be issuing a worldwide stock market forecast after we get the year-end closings. We will also issue the forecast for currencies and the prospects for the dollar after the New Year. Conference attendee will get these reports as part of the seat price.