The Little Book of Market Myths: How to Profit by Avoiding the Investing Mistakes Everyone Else Makes

Chapter Fourteen

Strong Dollar, Strong Stocks

“A strong dollar is just better.”

The relative strength (or lack thereof) of the US dollar is often cited as a symptom of myriad ills. As in, our economy is weak, therefore the dollar is weak. Our big budget deficit makes foreigners look down at us, weakening the dollar.

And then there’s the fear a weak US dollar self-perpetuates further weakness. For example, a weak dollar makes US imports more expensive—and because America is a net importer, that can drag on growth! And many fear a weak dollar portends weak stock returns.

Weak Dollar, Strong Dollar—Does It Matter?

It’s true a weak dollar makes imports more expensive. Don’t take that to mean a strong dollar is good! Or that when we have a strong dollar, people are happy about it. A strong dollar, as we had periodically in the 1990s, is also often blamed as the root of ills. Folks complain a strong dollar makes our exports too expensive, so no one wants to buy them, and that’s also hard on our economy. It’s as if folks believe there’s some perfect state of dollar/non-dollar balance—and if we’re not at that point, we’re headed for ruin.

This is a nonsense myth for several reasons. First, currencies are simply different flavors of money. One isn’t inherently better than another. There are both pros and cons to a weak and strong currency. Also, currencies aren’t appreciating assets like stocks. They’re commodities. If one is weak, it’s only weak relative to something else. So the dollar ...