MorningWord 1/27/15: Varsity Blues

by Dan January 27, 2015 9:29 am • Commentary

I didn’t expect it to happen this quickly.  But the fact that negative currency headwinds for U.S. multinationals has already trumped the benefit of lower input costs from the collapse in industrial commodities is quite startling. The misses or guides lower in the past week from CAT, JNJ, MSFT, PFE, PG, UPS & UTX suggest that the same forces that have caused the benefit of lower oil are the very factors causing the dollar to make long term highs against always every major currency.  It is has been my view that the asset bubble that was created by the U.S. Fed’s QE policy was in industrial commodities, not in the stock market and that it is not a coincidence that oil and other commodities collapsed as soon as the world became convinced that our QE would end in the fall of 2014.

SO, as an owner of risk assets, you have to ask yourself , if all forms of QE are created equal?  Can foreign QE generate the sort of demand for the risk assets that you own the way the U.S. Fed’s Varsity squad produced over the last 6 years? Well, I think Japan has proven they are at best on the Freshman team, and we will see what the ECB is capable of, but I suspect Draghi is likely  a JV playa.

So if you are invested in America’s best companies, you have to be very aware that you are likely not only betting on the one thing that is working in the global economy, the U.S. consumer, but you are also betting that foreign central bank stimulus can drag the global economy higher and in doing so debasing their currencies. But as this past week’s earnings and guidance has shown King Dollar, while good for America’s stature is not fantastic for U.S. multinationals corporate earnings.

Tonight’s report from Apple (AAPL) will be of particular importance on this topic as 75% of their sales come from outside the U.S. and much of their $155 billion in cash sits overseas.  Read my preview here