Is It a Stock Market Rally or a Dollar Devaluation?

SHOOT: Take a look at the graphs, but this quote says it all:

Fully 80% of the movement in the S&P can be explained by the movement in the dollar index.

clipped from seekingalpha.com Something ominous is at work here. Typically, a stronger dollar goes together with a stronger stock market. That is what we observe prior to the bank bailout last fall. Starting in the third quarter of 2008 and going to the present, the correlation turns sharply and persistently negative. A cheaper dollar means higher stock prices, as US assets are marked down for global investors. What we have is not a stock market rally but an adjustment to global market prices. Fully 80% of the movement in the S&P can be explained by the movement in the dollar index. That is a profile well known to emerging market investors. Whenever the Brazilians would pull another currency devaluation, stock prices rose to compensate, as tradeable assets floated up to world market prices. The bank bailout has made Americans poorer relative to the rest of the world and created the illusion of a stock market recovery. I continue to recommend classic commodity hedges (including gold and oil) rather than TIPS.