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"With weakness in the dollar expected to continue, investors are rethinking their plans across virtually the entire spectrum of asset classes.
As would be expected with a declining US currency, commodities are soaring, both in the materials themselves and the companies dependent on them.
But the stock market is in a dilemma: The modestly weakened dollar generally helps equities, but a severe downturn in the greenback can be bad.
And investors looking for safe-haven in bonds have to weigh whether the dollar's devaluation—brought on by the government buying up its own debt—presents enough opportunity in yield to outweigh inflation fears."
"Stocks
The currency's fall has been beneficial to the market so far because it generates inflationary pressure on the weak economy. But too much of a drop and investors will get skittish about the state of the US government and stocks will react likewise.
The dollar index has slipped 12 percent since March 9, when the stock market hit its most recent low. Since then, stocks have rebounded sharply, and government moves would seem to indicate that a weak-dollar policy is firmly in place—at least in part to boost the corporate fortunes and thus Wall Street.
That has generated worry, though, that there seems to be no end in sight to government moves that effectively drive down the currency's worth, setting off a dollar bubble that could ultimately pummel if not the entire market, then at least particular key sectors.
In the midst of a general uncertainty about stocks, investors are looking for other areas to put their money."
"Commodities
If there's a slam-dunk consensus play emerging from portfolio managers, it is the commodities trade.
In fact, Lynx this week launched a global real asset fund which trades in four commodities: timber gold, water and oil.
"Gold is getting close to a record high. It will be interesting to see how these factors sort themselves out," Rich Berg, CEO at Performance Trust Capital Partners, told CNBC. "We're very perplexed with the level of the stock market...I hate to get in the way but we're very nervous about current valuations."
"Treasurys
Because the government has financed so much debt with Treasurys and will continue to do so, investors are staying away from bonds until yields rise further. It's presented a Catch-22 for the government which has been trying to drive up prices so it has to pay less in yields.
Yet the investor trend has been to stay on the short-end of the yield curve, with big foreign investors such as China buying mostly 2-year notes and avoiding long-term commitments to the US.
Some attribute the various stock rallies over the past three months to technical trading, with computer-generated buy points sending people into stocks regardless of the fundamentals. A strong swoon in the dollar is something that could change that mentality.
A rise in yields also would drive investors out of stocks and into Treasurys."
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