In a word no! Not as long as the secular bear market remains in force. Ultimately I don’t believe the market will be able to hold up in the face of a stronger dollar for very long. Temporarily it can certainly do the unexpected. We all know how the market loves to prove everyone wrong. I dare say 99 out of 100 people if asked two weeks ago where the market would be if the dollar rallied back to 77 would not have said over 1100.
But for the last 7 years this relationship has held up when looking at the big picture.
The best the market has been able to do is drift sideways during any major dollar bounce. This big picture correlation will continue to hold up until this secular bear market is over. I don’t see that happening until two things occur. First we need to clean all the excess debt from the system. That certainly hasn’t happened yet. As a matter of fact the nitwits that started this seem hell bent on proving they can cure the world's debt problem by creating oceans of more debt. I dare say the market is going to continue to prove them wrong.
The second thing that needs to happen is the next big world changing technological breakthrough must occur. The last secular bull rose on the back of the personal computer and the internet. The one before that on the electronics revolution and television. I still think the next secular bull will ride a wave of biotech advances that will vastly improve the standard of living for the human race.
Until that technology starts to come online, whatever it is, the only fuel for further market advances is going to have to come from currency debasement. Real productivity is the only thing that is going to lift the markets and the dollar at the same time.
So short term the market can certainly make us all look like fools but the big picture fundamentals have not changed and those fundamentals will eventually start to drag on the markets as the dollar rally continues.
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