Wednesday, October 12, 2011

Why is the EURO/USD so Important to US Equities? NAS, DOW, SP?

Because of the following:

1. Money bunches/groups up... kind of like traffic on a road.
2. Funds (mutual, hedge, pension, etc.) have many $1B to over $100B of assets to "invest" i.e. not to lose or else. It's not their money, but they control it.
3. So much $ that a given fund might need to buy entire corporations representing a significant part of a major US stock index.
4. Item 3 is not feasible for volume reasons. Funds could go broke.
5. The $ need to be spread across the entire planet.
6. But, the collection is in US$ and the return payment needs to be in US$.
7. Where can they invest? Japan with the government and the BOJ salivating to ruin currency exchange rates? China where a few old guys can manipulate exchange rates in a heartbeat? Uh uh.
8. So the banks have invested in the Euro zone. And if the EURO/USD crashes, so do all banks and all institutions. So do all US equities and USD-traded commodities. Instant financial death... for all US institutions, but not necessarily for you if you have prepared correctly.