Earnings: Here vs Abroad

"I do like earnings coming from abroad versus earnings in the United States."

In his three hour appearance on Squawk Box this morning, Warren Buffett used the above quote in reference to his reasonings regarding recent investments he has made.  His comments certainly make sense in light of the dollar's continued weakness over the last several months.  As long as the recent trends in the dollar continue, one Euro's worth of earnings will be worth more in dollar terms next year than today.

In a report issued last May, we highlighted S&P 500 revenues based on the percentage of revenues that each company generates in the US versus overseas.  The chart below is reproduced from that report, and it provides a sector by sector summary of the percentage of revenues that each sector generates from international sources.  As shown, Technology, Materials, and Energy generate the greatest percentage of their sales outside the US, while Telecom Svcs, Utilities, and Health Care are the most exposed to the US.

Whether you think the dollar is reaching a bottom or will continue to fall, investors making specific stock decisions should know where the companies they are investing in generate their sales.  With that in mind, the Bespoke International Revenues database is a handy tool that provides the percentage of revenues that each company in the Russell 1000 generates inside and outside the United States.  This database is available free of charge to all Yearly subscribers to our Bespoke Premium service. 



Dollar Collapse

The recent tick down in the US Dollar index has moved the currency well into extreme oversold territory once again.  As shown in the first chart below, the US Dollar is trading well under 2 standard deviations below its 50-day moving average (bottom of green zone).  The currency has now been declining since the start of 2002 and recently broke to record lows as shown in the second chart below.  It certainly hasn't been a good decade for the greenback.  Will this thing ever go up again?



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Dow 30 Year to Date Performance

It's always good to know how the largest of large cap stocks are performing.  Take a look at the list of the 30 Dow stocks below and see if you know which one is up the most this year and which one is down the most.  It's a pretty tough call when the data isn't staring you right in the face.


Highlight the white space below to see how close (or not so close) you were.

StockYTD % Chg


"Jewelry Market Pandemonium"

Over at the, an article titled "Soaring Cost of Gold Causes Jewelry Market Pandemonium" mentions the following:

The soaring cost of gold and platinum is causing pandemonium in the UK's jewellery market as retailers and private owners rush to reappraise the value of necklaces, brooches and rings.

Jewellers in London's Hatton Garden - the capital's jewellery quarter - are raising the price of wedding bands on a weekly basis, with less-expensive palladium rings now coming into vogue. And insurers are urging clients to get another assessment of the value of their jewellery collections in response to the rapid rise in the price of precious metals, sparked by investors seeking refuge from volatile stocks.

"The price of platinum has been going up so fast, we're quoting people prices for platinum wedding bands on a Saturday and saying we can't guarantee the same price on Monday.

At least we can all sell our jewelry to buy gas if it comes down to it.  Yes, the commodities bubble is alive and well.


Dire Straits

An article in a local paper this weekend highlighted the tough times facing Americans these days.  And chances are that your local paper had an article on high gas prices or the struggling economy as well.  The main culprit -- higher prices of non-cyclical goods.  Below are some key quotes from various people interviewed for the article:

  • "I might have to take two jobs," said Alex Aguilar, who was working on his car Friday afternoon on Albion Street in Bridgeport.
  • A cook at a Westport restaurant, Aguilar said his gas tank is taking more and more of his money.
  • Forget about meals out, a drink after work, getting the car cleaned and detailed by a professional โ€” all the money for these things "I got to put it in the tank," he said.
  • "No more going to dinner on Fridays," he said, standing in the parking lot of Syms on Black Rock Turnpike. "No more long trips to New Hampshire."
  • "Soup and salad is $8," he said. The deli owner tells him the price is going to cover electricity and heat.
  • "All my life, my mother always had it warm. Now I go over there and I say 'I'm freezing, mom,' " he said.
  • "The economy is tough," said Guzman, who has two children, ages 12 and 8. In just a year, his family's food bill has gone from about $150 a week to $250 and sometimes $300 a week, he said, adding, "Everything is double."
  • "Heating oil dealers usually never want the winter to end," Herb said. "This year, they are yearning for the season to end because continued cold will push their customers further into arrears."
  • What's scary about this situation, compared to economic downturns of the past, Herb said, is that people have jobs and are still struggling to pay bills.
  • According to Riley, it's as if life's basic necessities โ€” like food, shelter and heat โ€” are slipping just beyond many people's grasp.

One of the more ironic comments in the article is that oil dealers can't wait for winter to end because customers are increasingly unable to pay their oil bills (forcing the dealers to eat the costs).  When oil bill defaults cause oil dealers to want demand to slow, something's got to give. 


This Week's B.I.G. Tips Reports at Bespoke Premium

Below we provide the titles of the in-depth B.I.G. Tips reports we released this week.  If any spark your interest, they are all available to our Premium subscribers.  These are anticipatory, ahead-of-the-curve research reports that cover markets, economies, stocks, commodities, housing and anything else related to making people money.  And Premium subscribers also receive many more reports as shown on our Products page.

This week's B.I.G. Tips reports: It's the First of the Month (a trustworthy day for the market), DELL Earnings (typical trading patterns on report days), Insider Buying by Sector (biggest buys and sells by insiders over the last month), Endowment Screen (analyzing Yale and Harvard's equity holdings), Bernanke Testimony (does the market love or loathe the Fed Chairman), Revisiting the Yield Curve (market performance based on the level and direction of the yield curve), March Seasonality (typical stock patterns during the month of March), Housing Futures (what CME's housing contracts are predicting for real estate), Breaking the Wedge (a look at the technical wedge pattern on the S&P 500), Retail Earnings (typical trading patterns on earnings for JWN and TGT), Recession Script (an analysis of what the economic indicators are telling us).

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Down Four Months In A Row -- We Have To Go Up Next Month, Right?

Below we highlight the one, three and six month performance of the Dow Jones Industrial Average following four consecutive down months in a row since 1900.  As shown, the median performance over the three time periods is lower than the median for all periods in all three instances.  The one-month median performance following four down months is actually negative (-0.56%).  This data suggests more losses could be in store.


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New Inverse Gold ETNs

Deutsche Bank listed three new Gold ETNs yesterday that allow investors to get the inverse return of the commodity, double the inverse return of the commodity, and double the return of the commodity.  Much like the inverse ETFs offered by ProShares, investors can now bet against Gold by going long the ETNs, making it possible for non-margin accounts like IRAs to take a short position on the commodity.  The tickers for the inverse ETN and double inverse ETN are DGZ and DZZ respectively.  The chart below highlights the price of Gold over the past year.  As shown, the commodity is currently trading well into overbought territory, and rest assured that the price will decline at some point in the future -- it's just a matter of when.  But if you think it's going to keep going up for now, DGP allows you to get double the returns on the upside.


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As Good as Goldman?

Ever since last year, when Goldman Sachs (GS) avoided (and even profited from) much of the credit malaise by shorting subprime, investors and the press have praised the company's investing skills.  However, recent actions from analysts suggest that being as "good as Goldman" may not be as coveted of a comparison as it was at the start of the year.

Every week in our Bespoke Earnings Estimate Revisions report for Bespoke Premium subscribers, we highlight the trends in earnings estimates for each sector and group over the last month.  Additionally, we also provide the individual companies that have seen the greatest number of upward and downward revisions.  Over the last two weeks, GS has shown up on the list of stocks in the Financial sector with the most negative revisions.  Are the other analysts just jealous?  Or is being the best house on a bad street also dragging them down?


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How The Best Have Done

The best performing US stock of 2007, FSLR, is down 21.86% year to date.  The second best, ONXX, is down 49.51%.  The third and fourth best, MOS and CF, are up 22% and 16% respectively.  We broke the Russell 3,000 into deciles (10% of stocks in each decile) based on their 2007 performance and found that, on average, the best of 2007 have been the worst of 2008.


Below we highlight the 25 best performing stocks of 2007 and also provide their 2008 year to date percent change.  Of the top 25, Synchronoss (SNCR) is down the most this year at -53.81%.  ONXX is down the second most at -49.51%, followed by Sunpower (SPWR) at -48.53% and ELON at -43.9%.  BPZ Resources (BXP) is the stock on the list that has done the best in 2008 -- rising another 44% so far this year.  CALM, MOS, AKS and CF are other notable winners.  The major winners are heavily concentrated in Materials, Agriculture and Energy.


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Financials 10-Day Advance/Decline Line

Below we highlight the 10-day advance/decline line of the S&P 500 Financials sector.  This indicator measures the average daily number of advancers minus decliners over the last 10 days.  When the indicator moves into the red zone, breadth is considered overbought and vice versa for the green zone.  One thing we have noticed for the Financials is that each subsequent low reading has been higher than the previous one.  This is a bullish sign for a sector that currently has a lot of unknowns.


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A Positive Breadth Reading

Below we highlight our trading range and 50-day moving average charts for the S&P 500.  The trading range chart highlights historical overbought and oversold levels for the index and the 50-day moving average chart highlights the percentage of stocks in the index that are currently trading above their 50-days. 

While the S&P 500 is still struggling below its 50-day moving average and trading far from levels seen in 2007, the percentage of stocks above their 50-days is showing signs of strength.  Prior to yesterday, more than 50% of stocks were above their 50-days (currently at 46%).  This underlying breadth is a big pickup from the range it has been in for a couple of months now and bodes well for the market going forward.


These charts are part of our weekly Sector Snapshot available to Bespoke Premium subscribers.


Inflation: Money's Termite

For those who didn't see it, in yesterday's WSJ, an Op-Ed piece by David Ranson discussed the impact of inflation on a currency's purchasing power.  The article contained an interesting chart showing the purchasing power of money using an inflation rate of 4%.  Without getting into a debate over where inflation is going, we think it is important to note how even small changes in an assumed inflation rate can have a big impact on the future value of your money.  In the chart below, we highlight the purchasing power of $1,000 over a 25-year period using the rate highlighted by Mr. Ranson, as well as three other high profile values.

As shown, using the upper level of the Fed's inflation comfort zone (2%), $1,000 today is worth only $603 in twenty-five years.  This translates to nearly a 40% reduction in value.  You think that's bad?  When we use the current values of the CPI and PPI, the value of money declines substantially faster.  At an inflation rate of 4.3% (the current y/y CPI), our $1,000 loses two thirds of its value over a twenty-five year period.  While that may seem like a big haircut, let's just hope inflation doesn't rise to the current level of the PPI, which most recently stood at 7.4%.  If that rate were to become the norm, our "cool grand" today would be a much less cool $146 in 25 years.


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Trouble in Muni Land

Municipal bonds began to have trouble a couple of weeks ago because of problems in the auction rate securities market.  But in recent days, muni bonds have fallen off a cliff.  The S&P National Municipal Bond Index consisted of 3,069 US muni bonds as of last September, and it attempts to measure the performance of the muni bond market.  Last year, iShares created an ETF that tracks this index (MUB), and as shown below, the price has dropped dramatically in recent days.  Looking around the media space, there hasn't been much talk of these declines yet, but rest assured that quite a few investors are taking hits on their portfolios due to these declines.  Today's current decline of 1.53% would be the biggest one-day decline in the ETF's history. 


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10-Year Yield and Stocks

Generally speaking, low interest rates are interpreted as a good environment for stocks.  However, over the last six months, the opposite trend has been in place.  When interest rates rise, stocks have been going up, and when interest rates fall stocks have declined.  The top chart below is a reprint of a chart we highlighted yesterday which shows the yield on the ten-year US Treasury since June.  Over this period, interest rates have been in a downtrend, with three periods where yields rallied to the downtrend before resuming their path lower.

In the second chart, we show the S&P 500 over the same period.  The sections of the chart in red highlight the three periods where interest rates rallied.  As shown, during each increase in rates, the S&P 500 rallied (although each successive rally has had less and less strength).   This current dynamic between stocks and bonds is likely to continue as long as credit markets remain on alert.  As credit fears increase, Treasury bonds are likely to rally causing yields to fall while stocks decline.  Then, when credit issues abate, investors are likely to rotate out of bonds and into stocks.


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