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davelj
ParticipantIt’s not just the DIRECTION of change that matters, it’s the relative RATE of change. The dollar has been crushed over the last two years. For example, it’s declined by about 20% versus the Euro since the beginning of 2006. Therefore, about 10 percentage points per year of “sales increases” in Europe reported by US multinationals were due to the exchange rate differential as opposed to actual volume increases over the last two years. So, yes, real demand increases will HELP to offset any negative currency issues, but they won’t offset the currency issues altogether. Without the help of a depreciating dollar, by definition results will increase at a decreasing rate (that is, positive first derivative, negative second derivative). And if there is a global recession then even volume increases could come into question.
davelj
ParticipantIt’s not just the DIRECTION of change that matters, it’s the relative RATE of change. The dollar has been crushed over the last two years. For example, it’s declined by about 20% versus the Euro since the beginning of 2006. Therefore, about 10 percentage points per year of “sales increases” in Europe reported by US multinationals were due to the exchange rate differential as opposed to actual volume increases over the last two years. So, yes, real demand increases will HELP to offset any negative currency issues, but they won’t offset the currency issues altogether. Without the help of a depreciating dollar, by definition results will increase at a decreasing rate (that is, positive first derivative, negative second derivative). And if there is a global recession then even volume increases could come into question.
davelj
ParticipantIt’s not just the DIRECTION of change that matters, it’s the relative RATE of change. The dollar has been crushed over the last two years. For example, it’s declined by about 20% versus the Euro since the beginning of 2006. Therefore, about 10 percentage points per year of “sales increases” in Europe reported by US multinationals were due to the exchange rate differential as opposed to actual volume increases over the last two years. So, yes, real demand increases will HELP to offset any negative currency issues, but they won’t offset the currency issues altogether. Without the help of a depreciating dollar, by definition results will increase at a decreasing rate (that is, positive first derivative, negative second derivative). And if there is a global recession then even volume increases could come into question.
davelj
Participantasianautica,
I’m not saying that the dollar will get stronger. (I expect it to flounder and perhaps even weaken a bit more.) I’m merely saying that in all likelihood the majority of the benefit that US-based multinationals get from dollar depreciation has already occurred, so the benefit going forward will be diminished. (That is, the dollar is declining at a decreasing rate – negative first derivative, negative second derivative in calculus terms.) Does that make more sense?
davelj
Participantasianautica,
I’m not saying that the dollar will get stronger. (I expect it to flounder and perhaps even weaken a bit more.) I’m merely saying that in all likelihood the majority of the benefit that US-based multinationals get from dollar depreciation has already occurred, so the benefit going forward will be diminished. (That is, the dollar is declining at a decreasing rate – negative first derivative, negative second derivative in calculus terms.) Does that make more sense?
davelj
Participantasianautica,
I’m not saying that the dollar will get stronger. (I expect it to flounder and perhaps even weaken a bit more.) I’m merely saying that in all likelihood the majority of the benefit that US-based multinationals get from dollar depreciation has already occurred, so the benefit going forward will be diminished. (That is, the dollar is declining at a decreasing rate – negative first derivative, negative second derivative in calculus terms.) Does that make more sense?
davelj
Participantasianautica,
I’m not saying that the dollar will get stronger. (I expect it to flounder and perhaps even weaken a bit more.) I’m merely saying that in all likelihood the majority of the benefit that US-based multinationals get from dollar depreciation has already occurred, so the benefit going forward will be diminished. (That is, the dollar is declining at a decreasing rate – negative first derivative, negative second derivative in calculus terms.) Does that make more sense?
davelj
Participantasianautica,
I’m not saying that the dollar will get stronger. (I expect it to flounder and perhaps even weaken a bit more.) I’m merely saying that in all likelihood the majority of the benefit that US-based multinationals get from dollar depreciation has already occurred, so the benefit going forward will be diminished. (That is, the dollar is declining at a decreasing rate – negative first derivative, negative second derivative in calculus terms.) Does that make more sense?
davelj
ParticipantYeah, tech earnings thus far have been hit or miss – some good, some bad (relatively speaking, that is). One thing to remember, however, is that lots of these companies are only meeting or beating estimates because of their overseas business and the appreciation of foreign currencies versus the dollar. Maybe the dollar will continue to tank and they’ll continue to get that benefit, but it seems like the rate of the dollar’s decline will slow going forward. So, it follows logically that that benefit will become less and less helpful going forward. I think if you backed out the currency adjustments tech earnings would look considerably worse this quarter (and the last couple).
davelj
ParticipantYeah, tech earnings thus far have been hit or miss – some good, some bad (relatively speaking, that is). One thing to remember, however, is that lots of these companies are only meeting or beating estimates because of their overseas business and the appreciation of foreign currencies versus the dollar. Maybe the dollar will continue to tank and they’ll continue to get that benefit, but it seems like the rate of the dollar’s decline will slow going forward. So, it follows logically that that benefit will become less and less helpful going forward. I think if you backed out the currency adjustments tech earnings would look considerably worse this quarter (and the last couple).
davelj
ParticipantYeah, tech earnings thus far have been hit or miss – some good, some bad (relatively speaking, that is). One thing to remember, however, is that lots of these companies are only meeting or beating estimates because of their overseas business and the appreciation of foreign currencies versus the dollar. Maybe the dollar will continue to tank and they’ll continue to get that benefit, but it seems like the rate of the dollar’s decline will slow going forward. So, it follows logically that that benefit will become less and less helpful going forward. I think if you backed out the currency adjustments tech earnings would look considerably worse this quarter (and the last couple).
davelj
ParticipantYeah, tech earnings thus far have been hit or miss – some good, some bad (relatively speaking, that is). One thing to remember, however, is that lots of these companies are only meeting or beating estimates because of their overseas business and the appreciation of foreign currencies versus the dollar. Maybe the dollar will continue to tank and they’ll continue to get that benefit, but it seems like the rate of the dollar’s decline will slow going forward. So, it follows logically that that benefit will become less and less helpful going forward. I think if you backed out the currency adjustments tech earnings would look considerably worse this quarter (and the last couple).
davelj
ParticipantYeah, tech earnings thus far have been hit or miss – some good, some bad (relatively speaking, that is). One thing to remember, however, is that lots of these companies are only meeting or beating estimates because of their overseas business and the appreciation of foreign currencies versus the dollar. Maybe the dollar will continue to tank and they’ll continue to get that benefit, but it seems like the rate of the dollar’s decline will slow going forward. So, it follows logically that that benefit will become less and less helpful going forward. I think if you backed out the currency adjustments tech earnings would look considerably worse this quarter (and the last couple).
January 22, 2008 at 3:18 PM in reply to: My prediction: DOW -500 tomorrow Tuesday Jan 22, 08…. #140918davelj
ParticipantI was on a plane for most of the day so I just got a review of the action.
From my first post in this thread: “I hope you’re right [the market declines big]. I just fear candy and cake (re: “surprise” rate cut) from Uncle Ben.”
Well, just as I suspected. Uncle Ben hands out more candy because God forbid anyone should lose some money or we should have a recession. Now, both of those things are going to happen going forward anyway, but at least the kiddies can pretend for another month that they won’t.
I actually thought the “surprise” cut would come tomorrow (Wednesday), after the market tanked 5% or so today. I thought maybe, just maybe, that Ben would think, “Let the children suffer just a little bit to remind them that bad things can happen sometimes.” But no. Too much to ask.
Given the 75 bps rate cut I’m actually surprised that we didn’t close in positive territory today. After all, I believe that this is the first time in the history of the Fed that (a) rates have been cut by more than 50 bps at one time, and (b) that an intra-meeting rate cut has been greater than 50 bps. It surprises me that that didn’t get the kids more hot and bothered – today’s market close was a Bronx Cheer. In my view, it shows how serious the problems are.
Shoes that will be dropping over the next 6-12 months that are not fully priced into stocks include: (1) Problems in Credit Card Land, (2) Problems in Commercial Real Estate Land, (3) Problems in Leveraged Lending Land, and (4) Recession, with all that implies. But at least we’re moving in the right direction.
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