NOT long ago, the preferred strategy for a lot of investors in US stocks was to pick companies that didn't have all that much exposure to the country's economy.
That is now looking precisely like the wrong approach.
The euro area, which amid all its financial woes managed to grow at a faster clip than the US last year, is now probably in a recession. Britain's experiment with fiscal austerity has put the screws on its economy. With China poised to grow at its slowest pace in a decade, emerging-market economies are losing speed.
The US is in the curious position of having one of the few economies that looks as if it will do better in 2012 than it did in 2011.
The changed global dynamic will be a challenge for companies that do most of their business outside the US. Meanwhile, companies with a focus on the world's biggest economy may not only be shielded from global woes but, in some respects, benefit from them.
In a further sign of how the world's woes are cutting into US companies' business overseas, the Commerce Department reported last Friday that exports fell for a second month in a row in November 2011. Given the sorry state of affairs in Europe and the sharp drop in China's import growth in December, it is unlikely things have gotten better in the interim.
And exports aren't the half of it. While the US shipped a bit more than $US2 trillion overseas last year, sales at the overseas operations of US-based companies came to $US6.4 trillion, according to estimates by US Trust's chief market strategist, Joe Quinlan. More than half of those sales come from Europe.
For many of the best known companies in the US, overseas exposure is particularly large. In its 2010 annual report, Coca-Cola reported that 69.5 per cent of its sales come from outside North America. 3M generated 65.5 per cent of its 2010 sales away from the US. Caterpillar's overseas sales accounted for 67.9 per cent of its global take.
Economists reckon the slowdown overseas will be a drag on US growth, but it is important to recognise that there are offsets. Softer global demand has put a damper on petrol prices, giving US consumers more to spend on other stuff. Likewise, falling prices for raw materials are giving businesses relief on costs.
Finally, while Europe's financial crisis remains a potent threat to the availability of credit worldwide, it has also re-established America's safe-haven status among bond investors, helping push lending rates lower. That, in turn, has led to an increase in credit-availability and an increase in sales of credit-sensitive goods like cars and capital equipment, notes JPMorgan economist Robert Mellman.
It is time for investors to put on their ruby slippers and start looking over the US-focused companies they ignored when global growth was the name of the game. There's no place like home.
re: EU crisis helps US reclaim safe-haven status for bond investorsen>frfr>en By FrogFryer Comments: 36303, member since Wed Apr 16, 2003
On Wed Jan 18, 2012 08:31 PM
jeanv wrote:
BurnParis wrote:
EU crisis helps US reclaim safe-haven status for bond investors
reclaim safe-haven status? Why, it had been lost.
And you all, FF financial analysts never told us?
Gee, I do wish you'd share more info in real time
--
sometimes we hit ya before it even hits the news or the blogs
but youre two much of a dreaming ass clown to even see it
so it doesnt matter
any points sound familar
from the first spat we had over confidence cohesion and leader ship a few moons ago up to the US bond market, even these guys a euro thats gonna be the currency trade of the millenia
CHA CHING
mark or a new euro EIther or is fine with me
OH YEAH BABY its gonna be
DONT SAY i didnt tell yas
The EU is Toast!
By Bruce Krasting Jan 15, 2012, 7:52 AM Author's Website
A rare occurrence in journalism happened today. Tyler Durden of Zero Hedge is in agreement with – hold on – Paul Krugman of the NY Times.
Both writers point readers to the FAQ from S&P on the downgrades in Europe on Friday. Both hone in on one particular section. I’ll repeat it:
We believe that a reform process based on a pillar of fiscal austerity alone risks becoming self-defeating, as domestic demand falls in line with consumers’ rising concerns about job security and disposable incomes, eroding national tax revenues.
There is absolutely no way to achieve economic growth while pursuing fiscal austerity. It just doesn’t work like that. The only other possibility is for Italy and Spain to re-establish their legacy currencies. That is S&P’s unwritten, but clear message.
Boom!
The point on legacy currencies made by S&P is actually an old one. Many have insisted that monetary union between north and south was a mistake. But for S&P to have put it on the table is very confrontational to existing EU thinking regarding the need for a breakup. European leaders have all along ignored the blogs and various MSM commentators. Their line has always been, “A breakup is unthinkable”. Not any longer.
I don’t expect “Merkozy” to change their stance on the single currency issue anytime soon. But others will. The message in the S&P FAQ will not be ignored. We’re going to see it in the MSM, and we’re going to hear about it from both the political and the financial sides of governments (and of course, the blogs).
The thought process of a resumption of legacy currencies won’t start on Monday. Before this can be accepted as a viable option, things have to first get worse. Much worse. Liquidity has to dry up further. Bond spreads for Italy and Spain have to widen. Funding conditions for the banks have to get worse. Equities (especially bank stocks) have to be broadly declining. The economies of the region need to be in recession coupled with very high rates of unemployment. Declines would be most severe in Spain and Italy. Social disturbance would be on the rise.
Reading the S&P FAQ, you have to conclude that the conditions that would force a return of the legacy currencies will happen, and they will happen in the next twelve months.
There are some very substantial currency implications built into this line of reasoning. If you believe, as I do, that things have to get (much) worse before we see Pesetas and Liras again, then you might logically conclude that the Euro is first headed south against the crosses. EURUSD at 1.100 would not be out of the cards in this scenario.
But consider the end game for this. What’s the value of a Euro if Spain, Italy, Ireland and Portugal were no longer part of the monetary union? That price starts at EURUSD 1.6000.
I look at this and wonder if the currency trade of the new millennium is taking shape.
We believe that as long as uncertainty about the bond buyers at primary auctions remains, the risk of a deepening of the crisis remains a real one. These risks could be exacerbated should renewed policy disagreements among European policymakers emerge or the Greek debt restructuring lead to an outcome that further discourages financial investors to add to their positions in peripheral sovereign securities.
The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policymakers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the eurozone's financial problems. According to our assessment, the political agreement reached at the summit did not contain significant new initiatives to address the near-term funding challenges that have engulfed the eurozone.
Instead, it focuses on what we consider to be a one-sided approach by emphasizing fiscal austerity without a strong and consistent program to raise the growth potential of the economies in the eurozone.
Financial solidarity among member states appears to us to be insufficient to prevent prolonged funding uncertainties. Specifically, we believe that the current crisis management tools may not be adequate to restore lasting confidence in the creditworthiness of large eurozone members such as Italy and Spain. Nor do we think they are likely to instill sufficient confidence in these sovereigns' ability to address potential financial system stresses in their jurisdiction. In such a setting, the prospects of effectively intervening in the feedback loop between sovereign and financial sector risk are in our opinion weak.
Despite these encouraging developments on domestic policy, we downgraded both sovereigns by two notches. This is due to our opinion that Italy and Spain are particularly prone to the risk of a sudden deterioration in market conditions.
While we see a lack of fiscal prudence as having been a major contributing factor to high public debt levels in some countries, such as Greece, we believe that the key underlying issue for the eurozone as a whole is one of a growing divergence in competitiveness between the core and the so-called "periphery."
We believe that the risk of a credit crunch remains real in a number of countries as economic conditions weaken and banks continue to consolidate their balance sheets in light of tighter capital requirements and poor market conditions in which to raise additional equity
We estimate a 40% probability that a deeper and more prolonged recession could hit the eurozone, with a likely reduction of economic activity of 1.5% in 2012.
We believe an even deeper and more prolonged slump cannot be entirely excluded. We expect this weak macroeconomic outlook if realized would complicate the implementation of budget plans, with slippages to be expected, which would likely further dampen confidence and potentially deepen the recession, as funding and credit is curtailed and the private sector increases precautionary savings.
Reports indicate that many investors had hoped that a breakthrough at the December summit would have enticed the ECB to step up its direct government bond purchases in the secondary market through its Security Market Program (SMP). However, these hopes were quickly deflated as it became clearer that the ECB would prefer to provide banks with unlimited funding, partly with the expectation that those liquid funds in banks' balance sheets would find their way into primary sovereign bond auctions. This indirect way of supporting the sovereign bond market may yet be successful, but we believe that banks may remain cautious when being faced with primary sovereign offerings, as most financial institutions have aimed at shrinking their balance sheets by running down security portfolios in order to comply with higher capital requirements, which become effective in 2012.
Shockingly, S&P dares to challenge not only the status quo, but "powerful national interest groups" - easily the first time we have seen something like this out of a "status quo" organization, let alone a rating agency.
re: EU crisis helps US reclaim safe-haven status for bond investorsen>frfr>en By jeanv Comments: 17442, member since Sun Sep 11, 2005
On Wed Jan 18, 2012 09:20 PM
BurnParis wrote:
The brick house that everyone (investors) is looking to hide from the wolf in is flying the American flag.
Hide from the wolf in the American flag? For how many weeks?
Remember that G3S3 thread : france-signals-slow-death-of-sovereign-debt-market www.fuckfrance.com . . .
AND you agreed with the following comment.
Mr brick house
First, governments will have to pay a lot more to borrow. It’s already happening. Italy has to pay almost 7% to borrow 10-year money. france has to pay more than 3%. Germany, Japan, and the U.S. can still borrow money at near record low rates. But that is not going to last forever. What we are watching is a bubble bursting in slow-motion. It will move from country to country.
The euro zone may be the first in the firing line, but it won’t be the last, nor will it be restricted to Europe.
By 2020, interest rates of 7% or more will be common for all the developed countries.
The era of cheap government borrowing will slowly come to an end.
re: EU crisis helps US reclaim safe-haven status for bond investors (karma: 1)en>frfr>en By BurnParis Comments: 27313, member since Thu Mar 13, 2003
On Wed Jan 18, 2012 09:28 PM
I do agree that interest rates for all countries will go up, equally,... except for those who's credit ratings are downgraded,... and is the case of some euro countries downgraded to junk. Their interest rates will go well beyond the 7% average they're talking about.
Not sure I see how that changes the overall fact of the USA being a market safe-haven,..
re: EU crisis helps US reclaim safe-haven status for bond investorsen>frfr>en By Hadrian Comments: 11171, member since Fri Jun 03, 2005
On Wed Jan 18, 2012 09:43 PM
Ver is grasping at straws.
It probably took him an hour to write that post wherein he references some guy named "Manny" for God knows what reason, and yet managed to say nothing at all.
Hey Ver, you probably do have better suits.
Singapore is well renowned for fashion, right?
Chinese tailors and all that.
And I guess nobody would know midgets better than you.
re: EU crisis helps US reclaim safe-haven status for bond investorsen>frfr>en By jeanv Comments: 17442, member since Sun Sep 11, 2005
On Wed Jan 18, 2012 10:24 PM
Hadrian wrote:
Singapore is well renowned for fashion, right?
A sentence rather off-topic. You answer 'fashion' to a sentence about 'suits'.
If the subject is tailoring and Singapore, Singapore has the usual tailoring of a big rich city, and exports mid to high-end clothing to the U.S. and Europe.
Fashion trendsetting might be NY, Milan, Paris and London, but it rarely translates into huge differences in suits people want to buy from one year to the other.
Besides, are you saying that between two suits, the best is the one which follows the most closely the latest fashion?
Anyway, it's nice to know you're always there to rush to take Fryer's defense. Has he paid you a retainer, or did he help you differently?
But in your haste to rush to his side, you do tend to use sloppy logic. You didn't use to. A shame, really.
re: EU crisis helps US reclaim safe-haven status for bond investors (karma: 1)en>frfr>en By FrogFryer Comments: 36303, member since Wed Apr 16, 2003
On Wed Jan 18, 2012 11:35 PM
Before trying to pretend nobody makes mistakes when writing, try to capitalize contry names in the very same post.
It would give your point more credibility.
watch out hes gone into lah dee DAH mode
whats your point grasping moron ?
what you said about french banks and tuxedos was written perfectly yet it still had zero credibility since anyone who's ever had a suit made and tailored even at some of the finest establishments on the planet would know that final alterations are really no problem it really only highlighted your lack of class the banks their went your intelligence...... for me anyway .....vulgar king joo bag fryer
no capitals
no structure no punctuation and yet its still correct
and fucking moronic clown said just last week said some of yas take this site way to seriously
to precious
now hes serious and your text better be up to snuff
