The influence of the dollar on markets and the elongating cycle

19 Eyl 2022

It's clear we're at an inflection point in global markets. There are so many troubling signs that we're in deep trouble on multiple fronts. Wars, energy prices, supply line issues, disease, political unrest, overspending by governments, you name it - All of this contributing to shaky ground for investing in anything non-tangible. Underneath it all is the value of the US dollar. Lots of people are talking about it skyrocketing and how it affects things. What's interesting is not so much that it's a crystal ball for when to invest - it's that it has proven to be a good indicator of shifting tides. There are plenty of times in the past 40 years when stocks have gone up considerably with the dollar and vice versa. What's fascinating about this, is when the dollar shifts direction, breaks a pattern and starts a new one, it often ushers in a change of direction of equities and the economy as a whole. In fact the last 2 times stocks bottomed, it was also closely tied to a change in the direction of the dollar. What's also interesting to look at is the flattening of the dollar over time. If you step back and look at the big picture, the cycles of the dollar raising are getting longer and flattened out, while the cycles of a deflating dollar are getting shorter. All of this, while the stock market has grown exponentially over the last few decades.

That leaves the question, where next? In the short term, at least from my perspective - we're in for another year or two of pain before the dollar breaks into a downtrend and start a new cycle. If inflation sticks around for a few years, don't be surprised if the next few years are more like the 70's, with stagflation.

In my view, better times will come, just not yet.