FOREIGN STOCK CASH INDEXES (EXCEPT JAPAN) ARE STILL ABOVE THEIR 2002 LOWS -- THAT'S BECAUSE THEY HAD FURTHER TO FALL THAN THE U.S. -- THE U.S. DOLLAR IS RISING BECAUSE FOREIGN CURRENCIES ARE FALLING

GLOBAL BENCHMARKS... A couple of readers ask where foreign stock markets were in relation to their 2002 lows. And they wanted to see the charts of the actual cash markets instead of Exchange Traded Funds. Charts 1 through 5 show five major foreign stock benchmarks through yesterday's close. I'm showing them from the strongest to the weakest. Canada is the furthest from its 2002 low. Charts 2 and 3 show Britain and Germany having formed the same "double top" patterns in the US. Neither one has broken its 2002 however. France is the weakest of the three. Chart 4 shows the 2007 peak in the CAC forming from a lower level than in 2000. Not surprisingly, France is the closest to its 2002 low. The weakest of the foreign markets is Japan. Chart 5 shows the Nikkei 225 having already broken its 2002 low.

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

EAFE AND EMERGING MARKET CASH CHARTS ... Chart 6 shows the MS EAFE Index (Europe Australasia and the Far East) through yesterday. It is bearing down on its 2002 low but hasn't broken it yet. Chart 7 shows the MSCI Emerging Markets Index in a slightly stronger position, but not by much. The main reason most foreign markets are still above their 2002 lows (while the U.S. market has broken its low) is very simple. In the boom years between 2003 and 2007, foreign markets rose much further than the U.S. market. As a result, they have more ground to lose before reaching their 2002 lows. While a falling U.S. Dollar gave a boost to foreign shares during the global bull market that ended in 2007, a rising Dollar is now working against foreign shares.

Chart 6

Chart 7

CURRENCIES TRADE IN PAIRS... Another reader asked how the U.S. Dollar can be rising when the U.S. economy is so weak. To understand why, you have to understand that currencies always trade in "pairs". When the Dollar rises, the other currency falls. When you buy one, you sell the other. Chart 8 shows the inverse relationship between the Dollar Index (black line) and the Euro (blue line) since the start of 2008. The USD bottomed last July when the Euro peaked. It's not a question of the rising Dollar reflecting a strong U.S. economy. It means that, at the moment, the U.S. is in better shape than Europe. The U.S. was the first to start lowering interest rates and the first to reach zero (outside of Japan). European markets are further behind the curve and have more easing to do. When foreign investors want to sell their currencies, they have to buy another currency. Right now, the currency of choice is the U.S. Dollar. As I've explained before, the rising dollar reflects foreign weakness more than U.S. strength.

Chart 8