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If that's the case, one would expect the FX rate changes to equally increase European market valuations, if USD is the unit of account (numerare). If the Euro

by KMag 6y ago

If that's the case, one would expect the FX rate changes to equally increase European market valuations, if USD is the unit of account (numerare). If the Euro were being diluted at a rate that kept FX rates in check, then one would expect that to equally buoy European market valuations. So, there may well be something to be said about USD dilution, but I don't see how it affects the relative market capitalizations of the US tech sector vs. the Eurozone markets.

Rury 6y ago
Not necessarily. It's all supply/demand driven. Just because there's a sudden increase in money available, doesn't necessarily mean everything is going to inflate in valuations. Only things that are in demand will inflate. Take it this way: If everyone who received a stimulus check this year went "Awesome I'm going to go buy 30 turkeys with this stimulus money!" - The price of turkeys would skyrocket as the demand for turkey's skyrocketed with all the additional money available, but the supply of turkeys didn't proportionally increase. However, the price of shirts would remain relatively the same as the demand didn't skyrocket for shirts. And this effect applies to foreign currencies/foreign stocks... as they're just another thing you can trade dollars for. This is also why CPI is a garbage metric for inflation. It only tracks certain things, it doesn't track things like stocks or real estate... Today people mostly have what they need. With all this additional money they received, most go "where do I put this money? Eh may as well put it into stocks..." And they buy stocks that they think are stable and good investments - and only those stock valuations inflate.
sirmoveon 6y ago
Most world economies keep their reserves in USD or are highly leveraged with USD transactions. The denominator by which everyone has to abide by is the USD and its probably why the relative advantage you are speaking of doesn't present itself.

by KMag 6y ago

Rury 6y ago

Not necessarily. It's all supply/demand driven. Just because there's a sudden increase in money available, doesn't necessarily mean everything is going to inflate in valuations. Only things that are in demand will inflate. Take it this way: If everyone who received a stimulus check this year went "Awesome I'm going to go buy 30 turkeys with this stimulus money!" - The price of turkeys would skyrocket as the demand for turkey's skyrocketed with all the additional money available, but the supply of turkeys didn't proportionally increase. However, the price of shirts would remain relatively the same as the demand didn't skyrocket for shirts. And this effect applies to foreign currencies/foreign stocks... as they're just another thing you can trade dollars for. This is also why CPI is a garbage metric for inflation. It only tracks certain things, it doesn't track things like stocks or real estate... Today people mostly have what they need. With all this additional money they received, most go "where do I put this money? Eh may as well put it into stocks..." And they buy stocks that they think are stable and good investments - and only those stock valuations inflate.

sirmoveon 6y ago

Most world economies keep their reserves in USD or are highly leveraged with USD transactions. The denominator by which everyone has to abide by is the USD and its probably why the relative advantage you are speaking of doesn't present itself.