Saturday, December 01, 2007

Questions and possible answers

1. Can the stock market go up while the majority of Americans see their standard of living go down?
2. Can the stock market go down and the majority of Americans see their standard of living go up?
3. If the dollar goes down further, will that help or hurt the standard of living of the majority of Americans?
4. If the dollar strengthens, will that help or hurt the standard of living of the majority of Americans?
5. Does your chewing gum lose its flavor on the bedpost overnight?

Answers

1. Yes. Well, that's a qualified yes. If aggregate consumer spending is only modestly impacted by the decline in the standard of living by the majority of Americans because the prosperous minority keeps spending or can spend more, there's no problem for the equity market. If it reaches a point at which overall consumer spending declines materially, then U.S. focused stocks and many foreign stocks that depend on exports to the U.S. will go down.
2. Not likely.
3. In the medium term it will not likely help the standard of living improve significantly but it may maintain the standard of living in the current range as jobs from exports will help support employment. In the long run it will be a great disaster for perhaps 80% or more of Americans as inflation must ultimately crank up in this globally dependent economy.
4. A strengthening dollar, in a modest way, would likely not have a significant negative impact on most Americans and would begin to support the buying power of what money Americans do earn.
5. Yes.

The only certain correct answer is #5.

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