ManyPeaks.com

One of our readers (and valued clients!) asked for more detailed charts regarding yesterday’s post about Europeans’ returns owning United States stocks versus those a US investor achieved.

The chart below shows both the Euro vs. Dollar relationship and the Dow Jones Industrial Average for the past 10 years. Euro vs Dollar is always quoted with Euro first, so that’s why the chart is going northeast rather than southeast.

The basic premise is that much of the rise in equities since the March 2003 lows — which occurred the day bullets started flying in Iraq — is attributable to the devalued purchasing power in the US Dollar rather than a true increase in value that can be exchanged 1-1 around the globe.

This same concept applies to the well-publicized moves in commodities, including the chart of crude oil below. If your currency is Euros, this long term chart does not climb nearly this steeply. Instead of being a 4-bagger since 2001, oil is only a double during that timeframe in Europe. That’s a tremendous difference. The same could be said for housing price increases earlier this decade — home prices rose, but against what? A US dollar ! They did not rise that much when priced in other currencies.

Here is a chart of the Dollar Index, which measures our greenback against a diversified basket of currencies including Euros (the biggest weighting), Japanese Yen, British Pound, Swiss Francs, etc. The dollar has of course faltered against all of its competitors since early this decade, and now sits at its lowest value ever since the index was created in 1971.

Long US Dollars, by default