Thursday, May 9, 2013

US Markets hitting new highs!

*** Note: This post is of a very simplified calculation. There's nothing professional in it. ***

The numbers are appearing to break new highs. USA has broken it's high of 14198 in 2007 while STI appears to be languishing far below the 2007 high of 3906.

But is it really due to nominal value or currency value?
I shall make a simple comparison using USD to SGD as a simple consideration.

Adjusting for Currency Value + inflation
Year 2007:
1 USD = 1.55 SGD
Dow Jones hit a high of 14198

Year 2009:
1 USD = 1.5 SGD
Dow Jones hit a low of 6469

Year 2013
1 USD = 1.23 SGD

Supposed value of SGD (simplified assumption) remains a constant,
14198 will work out to be 17892 (14198 / 1.23 * 1.55)
6469 will work out to be 7889 (14198 / 1.23 * 1.5)

Adjusting for average inflation rate of 2.0% for the USA from 2007 to 2013,
17892 will turn to 20149 today
7889 will turn to 8539 today

There is difference of 11610. Given the Dow Jones close is 15105, a difference of 6566 from the low.
The retracement percentage is roughly 56.6%

And if we assume the SGD stays at a constant value throughout.
With a high of 3906 in 2007 and a low of 1455 in 2009 (numbers from daily values of STI from Yahoo Finance)

Adjusting for average inflation rate of 3.5% for Singapore from 2007 to 2013,
3906 will turn to 4801 today
1455 will turn to 1670 today

There is difference of 3132. Given the STI is about 3430, a difference of 1760 from the low.
The retracement percentage is roughly 56.2%

In other words, nominalizing all to SGD and country inflation rate actually shows that the retracement percentages are very close (56.5% vs 56.2%).

So while the numbers in Dow looks to be breaking new highs, it is in my opinion a credit driven rally, made possible by the devaluation of the USD. In other words, valuations of stocks in USD are higher because valuations of USD has dropped significantly.

Just some two cents of thoughts, with plenty of simplifications.


  1. The stock market is an early indicator of the economy. It means the US economy is recovering.

  2. This is a very good news to all of us traders, I am really happy to hear that the USD are slowly having a bounce back though I already heard about it through bbinary review bancdebinaries.com it is still nice to know that other portal are also checking the performance to spread the news, now I could trade with much confidence on USD. And hopefully they continue to be back on track.


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