Consequences of a Rising Dollar

The recent strength in the US dollar has had an impact on the market. First, let’s consider what broad effects a rising US dollar traditionally has on the market: historically a rising dollar has coincided with a decline in commodity prices and a decline in international equities.

With that said, the international markets are on defense; interestingly emerging markets continue to exhibit positive relative strength versus the developed countries. The systematic discipline of the portfolio has reduced exposure to the International/Global equity ETF's that exhibited weakness.

Commodities, particularly metals, had been a portfolio holding for a while as metals were showing some of the strongest relative strength in the commodity area. That strength quickly evaporated with the dollars rise and, as a result, Silver was one of the first positions to be sold.
Overall, we're at an interesting spot right now as we've had some indicators reverse down, but others remain positive. When looking at a trend chart of the S&P it appears that we had a well needed reversion to the mean. Of course, that could change, but I am pleased with how the portfolios handled what was a difficult market for many in 2009.
Certainly there are many cross-currents today and it would be helpful to have some means for accurately predicting what the next pieces of information will be, however the reality is that the future will not reveal itself to us until it is upon us, so we use the information that we have today to make the best decisions possible.

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