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Homecoming time: Money pours back into U.S. markets

August 8, 2008 |  4:17 pm

On a wild day for global markets, one message came through loud and clear: All things considered, U.S. financial assets aren’t such a bad place to be.

Investors and traders fled most foreign currencies and commodities -- and stocks of some formerly hot emerging-market countries -- and came running back to the dollar and to Wall Street.

The currency moves were particularly dramatic: On Thursday the euro was worth $1.533. Today it’s worth $1.502. In the last five days alone the European currency has lost 3.5% of its value. Time to reconsider that U.S. "staycation" in favor of a week in Paris?

Nyseflag A stronger dollar implies that money is coming back home, and that may have helped power the 302.89-point, 2.7%, surge in the Dow Jones industrials, to 11,734.32.

By contrast, Chinese stock markets hit new bear-market lows. Russia’s market dived 6.5% as that nation’s conflict with neighboring Georgia intensified. Brazil’s main market index was off 0.8%.

One reason for the new, big love for America is the increasingly popular view that, just as the U.S. led the global economy into the current slowdown, it will lead the world out.

"The thinking is that we’re ahead of the rest of the world in the economic cycle," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis.

Whether we come out of this first remains to be seen. But some grim economic data from Europe and Japan in recent weeks at least confirm that the slowdown has gone global. In that sense, the U.S. is the devil you know.

The rebounding dollar, meanwhile, is helping to drag down commodity prices. Investors who turned to commodities to offset the sinking buck in recent years now may feel that it’s time to reverse that trade and collect their profits.

And the cheaper oil gets, the better U.S. consumers feel, and the more likely it becomes that the most dire predictions for the domestic economy won’t come true.

Still, it’s worth remembering that 24 hours ago investors were piling into government bonds, and out of stocks, on fears that the global economy was headed for a major train wreck. Somebody get Mr. Market a Prozac.

In any case, a lot of the action today suggested that U.S. financial assets were winning by default -- i.e., they’re seen only as the best of a bad lot.

But sometimes you have to take what you can get.

Photo: Love it or leave it? Outside the New York Stock Exchange today. Ed Ou/Associated Press

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