Even Counting in Dollars, the US Rally is Only So-So
You haven’t been looking very hard recently if you haven’t seen a chart comparing the rally in the Dow Industrials to what it would be if priced in gold or Euros. Eddy Elfenbein’s got a problem with that.
Don’t let anyone tell you that this rally isn’t for real. And especially, ignore all the phony comparisons (to gold, to euros, to inflation, to Swedish kronor). Who cares? I don’t use euros anyway. Why not compare it to bandwidth? I use lots of that. Anyone can use clever comparisons to show what they want.
It is fair enough to say that for US investors the framework for investing is the US dollar. Why should we care, for example, if European investors aren’t getting a good return? If all our liabilities and our income is dollar-based, why compare our returns to anything else?
Well, fine. Let’s compare the rally to other potential investments in dollar terms. I sorted the Yahoo! ETF browser by 1-year returns and the S&P 500 didn’t even crack the top 100 (it was 101). Instead of earning the (quite respectable) $15 per $100 invested here, wouldn’t you have rather had Malaysia’s $49.22, or even Germany’s $32.38?
Not fair, you say, to look at 1-year returns when it has been more recently that the US markets have been on their record streak? Fine. Year-to-date the S&P 500 ranks 228th among ETFs. Over the last 3 months it is 238th. These rankings are barely average.
The charts comparing the stock return in anything other than dollars is simply a way of showing that other investments performed better. Unfortunately, presenting it that way can prove confusing to those who ask why they should care. It is not a very good illustration when it doesn’t make the point.
Disclosure: Author is long STREETTRACKS GOLD (GLD) at time of publication.
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If any portion of a companies profits are derived from overseas, then yes, it matters about the dollar.
To that point, we have this article.