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Old 07-11-2012, 09:21 AM   #1
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Lightbulb US Stock market is starting to lag Eurozone stocks

As you know, I'm from Switzerland, so I'm following Eurozone stock markets probably more closely than you do.
Since a few days, something pretty interesting can be observed.
For the first time since many months, Eurozone stock markets have started to outperform the DOW and the S&P500. Especially the German Dax and the pan-European Eurostoxx50 have been performing way better then US stocks. I think this is for two reasons:

1.) US stocks are way higher valued (P/E, P/B, P/C), so they trade at a premium.

2.) The strong dollar is hurting US exporters. Most large US corporations make a large chunk of their money in non-USD markets. This isn't priced in at all.
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Old 07-12-2012, 07:36 AM   #2
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And here we go:
P&G to Philip Morris Blame Currency for Forecast Cuts
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Old 07-12-2012, 07:42 AM   #3
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Originally Posted by swissaustrian View Post:
And here we go:
P&G to Philip Morris Blame Currency for Forecast Cuts
It always amuses me when people get upset over quarterly variations in a company's profits. Business is inherently seasonal and cyclical. I don't care how much you pay a CEO, he can not affect fluctuations in demand or currency exchange rates. The only thing a CEO should be worried about is long term profit growth; NOT myopic quarterly profit focused!

If you pay to hedge against every possible macro economic fluctuation you will reduce possible losses in any given quarter, but at great cost to buy all those derivatives which lowers you overall profitability.
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Old 07-12-2012, 07:50 AM   #4
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I was shocked to read that Google is hedging their currency exposure. That's quite a big deal.
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Old 07-12-2012, 08:44 AM   #5
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About 81 percent of Fortune 100 companies report they are actively hedging currency in some way, according to an analysis of regulatory filings by Fireapps Inc., a Scottsdale, Arizona- based company that makes software to help manage fluctuations.
I guess it really shouldn't be surprising for multi-nationals to be doing this. They see the strong moves in FX markets they way purely local companies don't.
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Old 07-13-2012, 04:19 AM   #6
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you are right PMBug, for example the company I work for atm, it is a big US corp with UK branch - costly enough for their share prices, when the dollar goes up (or more likely when Sterling had bottomed), then reported earnings of the UK operations are going down. I've seen some sour faces in our management for that reason, because if the move is big enough & timing is unfortunate, it might and is affecting our share prices - even if the UK business is doing well (in Pounds Sterling term), but on the surface of it, it looks like the UK business is going down (in US $ terms, where shares, net earnings & earning per share are calculated).
So I wouldn't be surprised at all if some big businesses (by nature, more integrated globally, like Google), would be hedging FX.
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