Sunday, November 25, 2007

Cover Stoy Indicatior....

The $ crash and the strong € (€/$ today 1,4875) is making more and more headlines in Germany and the rest of Europe. Dozends of companies are now warning on a daily basis that the strong € is hurting their business. "Der Spiegel" is the most influential, respected and important news magazine in Germany. So i think it qualifies for the "Cover Story Indicator" and the worst at least for the short term for the $ might be over. Largely thanks to the way overvalued € and the weakening European economy..... Another hint that the € is way overvalued can be seen when you look at the exchange rate vs the oil rich Norwegian Crown.....

Der US $ Crash (€/$ 1,4875) macht mehr und mehr Schlagzeilen in Deutschland und dem restlichen Europa. Dutzende Firmen warnen täglich in Ihren Veröffentlichungen das der starke € ihr Geschäft erheblich beeinflußt. Wenn also der Spiegel als wohl bedeutenstes Magazin dieses Thema auf den Titel hebt könnte einnmal mehr der "Cover Story Indicator" greifen und daraufhin deuten das zumindest kurzfristig das schlimmste vorbei sein könnte. Das basiert aber weniger auf der stärke des $ als vielmehr auf der krassen Überbewertung des € der noch keinerlei Abschwung in der Eurozone diskontiert hat....... Wie extrem der € inzwischen aus dem Ruder gelaufen ist läßt sich am besten erahnen wenn man sich den Vergleich mit der norwegischen Krone vor Augen führt......

One company is follow closely is K+S. They are one the leading fertilizer companies in the world and they have have warned 2 times within a week that the higher $ did hurt earnings significantly and much stronger than anticipated. Even with a complex hedging strategy they were not able to compensate for the slump ( maybe too complex even for the management...). Compare the charts from the US competitor Potash with K+S over the past 6 month. If you now add the 10 percent exchange rate difference during the 6 month to the Potash outperformance the chart would look even more impressive.......

Ein gutes Beispiel für die Problematik ist die bei uns im MDAX gelistete K+S. Sie sind einer der führenden Dünge/Fertilizer Firmen weltweit und mußten binnen einer Woche zwei Warnungen wegen des schwachen $ herausgeben. Trotz einer angeblich durchdachten Absicherungsstrategie waren Sie nicht in der Lage diesen rapiden Verfall auszugleichen. Die Schuld für die zweite Warnung geht klar zu Lasten des Managemenst. Es änder aber nichts an der Tatsache das trotz bommenden Geschäftes die Gewinne pro Aktie durch Absicherungsgeschäfte und den starken € aufgefressen worden sind. Vergleicht den Chart mit dem führende US Konkurrenten Potash. Wenn man jetzt noch die 10% Währungsverfall berücksichtigt ist die Outperformance noch deutlicher....

I could name several other examples for this kind of currency impact also for other currencies like the Yen etc...

Eine ähnliche Beeinträchtigung gibt es auch für anderen Währungen wie z.B. den Yen usw.....

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4 Comments:

Anonymous Anonymous said...

So is this accident or intention?

2:03 AM  
Blogger jmf said...

Moin,

accident.

I assume the € is very close to a top.

The $ will weaken further but probably not against the €

2:08 AM  
Anonymous Anonymous said...

Thanks for an excellent blog, which I have been periodically reading for some time now.

I think you're likely to be correct about the "Business Week Cover Effect" now being applicable to Der Spiegel; ie, that this is likely to be a contrary indicator.

I read the Spiegel piece, and for the first time, was unimpressed with the journalism of that otherwise great magazine. In my view, this was a mish-mash of alarmism and out-of-context statistics which failed to appreciate the greater picture.

Here's some food for thought:

If the dollar goes down another 30%, is it really realistic to expect the US stock market to go down similarly? This would give you the ability to purchase interests in some world-class companies at 50% on the dollar (euro), or less.

The Europeans like to criticise Americans for excess spending on luxury items, but are worried that the low dollar will make it difficult for Americans to keep spending on European luxury items, including German cars. Well, you cannot have it both ways. Either the Americans become more responsible and buy fewer Porsches, or the Americans keep spending above their means. In the long run, the former path is the only possible one, and the world will have to adjust accordingly.

US manufacturing is not dead, as implied by the article. More goods than ever are manufactured in the US, just with more machines and fewer people. Same as in Germany and everywhere else.

By the way, if US auto manufacturing is to be revived, BMW and Mercedes will sell fewer cars in the US. In the 1950's and 1960's, the US exported cars all over the world. No more, for the past decades. Germany (or Japan) is no more entitled to forevermore being the prime auto manufacturing nation, than the US once was. These things change, for the better and worse; like it or not.

On currencies: all currencies decline, including the DM/Euro. The rates of decline may be different, and with time, even a 1%differential makes for a huge long-run difference. Nevertheless, in the long run, you want your money in income-producing assets (such as good companies), not in cash in any currency. In the short run, you might make some speculative gains if you guess right, of course.

I lived in Europe 2001-2002 at which time the dollar was at a record high; Europe could do nothing right, and all was great in the US in spite of our current president. Today, the facts are not tremendously different, but perception is. The glass is now half empty in the US, half full in EU. Five years ago, the opposite was the conventional wisdom.

At this point, fashion models are advising on currencies, and everyone within and without the US is investing in non-US assets and ignoring the US. The fashion models' advising on currencies reminds me of when the Joe Kennedy in 1929 decided to sell short stocks, because a shoe shine boy had given him stock tips. Same phenomenon, in my view.

In the long run, the US will adjust and do just fine. Europe also. And there will be new sets of problems to panic about.

Keep it up with the good blog.

12:59 AM  
Blogger jmf said...

Moin,

thanks for the kind words.

7:29 AM  

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