The Booming Stockmarket – a Simple Explanation

One Salient Oversight writes:

I’ve been trying to work out why US Sharemarkets are booming while the US Dollar is simultaneously tanking – and I have this theory that it may be because people are fleeing from the debt (bond) markets.

I encourage you to read the rest of the piece.

That said, I don’t disagree with One Salient Oversight often, but I think there’s a simpler explanation which doesn’t occur immediately to people who are used to stable countries, even fictional stable countries. Regular readers know I was born in the US, but grew up in South America in the 1970s and 1980s, and it colors my thought process to this day. Hyperinflation, currency devaluations, a foreign tourist walking a rat on a leash on Copacabana beach, I’ve seen it all. And while the currency devalues, prices, which are nominal rise. And that includes the price of stocks.

If the dollar continues to devalue, the nominal price of the stock market will continue to rise, but in devalued currency. And that’s not a good thing, no matter how Lawrence Kudlow tries to spin it.