“I can understand the prices of oil, precious metals, food, etc. going up when the dollar is devalued – but how does that reconcile with housing and stock prices going down?”

Jules F.

Hi, Jules –

A devalued dollar doesn’t really have a strong relationship with the housing or stock markets. Granted, a weaker dollar should make any American assets more attractive to foreigners. But there isn’t a huge, parallel relationship such as the one the dollar shares with oil.

So why are our stock and housing markets crashing? Because banks issued way too much credit to people who never should’ve gotten it. Now those loans are being defaulted on, and banks across the nation are losing tens of billions.

Since the big banks are in trouble, they have slowed their lending. And if people can’t borrow money easily, a lot of them won’t buy a house, a car, or even a washing machine. This reduced spending eventually hits the profits of major corporations, and the downturn continues.

In the end, the housing and stock market crash had little to do with a falling dollar and more to do with too much credit. Until that build up finishes unwinding, you’ll continue to see bank stocks drop in value.

One of the best ways to take advantage of their fall is to buy the UltraShort ProShares Financials ETF (SKF). This ETF (exchange-traded fund) goes up 2 percent every time the Dow Jones U.S. Financials Index drops 1 percent.

– Charles Delvalle