TALK BACKWARDS

8/8/08

Back in the Spring when the dollar was trading at record lows against the euro and multi-year loans against the yen, the stock market/economy bulls told us how terrific the weak dollar was for the U.S. economy and for stocks. That callow argument, which completely ignored the U.S.’s status as a huge and getting more in hock by the minute debtor, came straight from the econ textbooks of the ‘70s: our weak dollar would make our exports more competitive and currency translation would have a eupeptic effect on the earnings of American multinationals. But this particular post does not deal with the merits of that argument.

Now that the dollar is strengthening at a breathtaking pace (up over 3% this week vs. the euro), the bulls are arguing that a strong dollar is terrific for the U.S. stock market/economy. Part of this protean argument is that a strong dollar puts downward pressure on commodity prices. This is a more formidable argument than the almost risible contention that a weak dollar helps us by making our export more competitive, but, again, the purpose of this particular post is not to argue the merits of the various arguments regarding the salubriousness, or lack thereof, of a strong dollar for our economy and equities markets.

So, if you’re a bull, a weak dollar is good for the economy/stock market and a strong dollar is good for the economy/stock market. Sure, this argument is contradictory on its face, but I am convinced that such cant is not duplicitous but merely a reflection of human nature. We all tend to talk our positions. We all have a tendency to decide what we think on largely subjective or visceral grounds and then find facts and “logical” arguments to support those positions. The task of a good investor, trader, or an open minded, inquisitive human being is to overcome this tendency and work from the facts to an opinion rather than the other way around. To paraphrase St. Paul, we have all fallen short in this endeavor. But the best of us at least try to put the argument before the conclusion once in awhile.

The late great Chicago folksinger Steve Goodman ended his classic “Turnpike Tom” with the old and obscure adage that “We only fall for lies and stories when we really want to.” One of life’s tasks is to stop wanting to fall for lies and stories and instead seek the truth.