Tags: david | frazier | Dollar | Rallies | Earnings | Quality | questionable

Don’t Be Swayed by ‘Experts’ About Dollar, Earnings

Tuesday, 19 Oct 2010 12:55 PM

The exchange-value of the U.S. dollar rallied sharply yesterday and again this morning, after the U.S. Treasury Department reported yesterday that foreign investors purchased substantial quantities of U.S. Treasury securities during August.

Specifically, the Treasury Department announced that foreign investors purchased 291 percent more Treasury notes and bonds during August than they did during the prior month and 318 percent more of those securities than they did during the same month a year ago.

Although the Treasury Department didn’t comment on the reasons for the big jump in foreigners’ purchases of U.S. Treasury securities, my experience suggests that central banks in many foreign countries increased their purchases of U.S. Treasury securities in an effort to stabilize the recent decline in the exchange-value of the dollar.

The fact that China’s central bank increased its purchases of Treasury securities by $21.7 billion and that U.K. investors increased their purchases of Treasury securities by $74. 1 billion during August seems to support that claim. (Note: Foreign investors must exchange their currencies for U.S. dollars – they must purchase U.S. dollars – whenever they buy U.S. Treasury securities).

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Although some investors seemed to be caught off guard by today’s rally in the dollar, as the prices of gold, silver, coal and other commodities that are priced in U.S. dollars fell sharply, you might recall that I wrote an article last Tuesday forecasting a rebound in the dollar.

Given the fact that the economies of many countries around the globe depend heavily on exports to the United States, I expect foreign central banks to continue to increase their purchases of U.S. dollars and for the dollar to continue to rally for the next few weeks.

I therefore urge you to ignore the forecasts made by many so-called experts suggesting that the value of dollar will fall sharply during the coming months.

On a separate issue, I urge you to not get caught up into believing that U.S. companies will continue to grow their revenues and earnings at a healthy rate during the next couple of quarters.

Although many so-called experts claimed during the past few months that publicly traded U.S. companies will, in the aggregate, report healthy gains in their financial operating results for the quarter ended Sept. 30, 2010, the third-quarter results that have been released thus far by U.S. companies don’t support those forecasts.

For example, national grocery-store chain Supervalu announced that its earnings per share declined 37 percent during the quarter ended Sept. 30, as compared to the prior quarter, and that its earnings fell 23 percent compared to the same period a year ago on a 9.2 percent decline in its revenues.

Bank of America announced that it lost 77 cents per diluted share during the quarter ended Sept. 30, as compared to a loss of 26 cents per share during the same quarter a year ago.

Third-quarter operating results of a few other well-known companies are outlined below:

• Harley-Davidson’s earnings per share fell by 10.2 percent, compared to the prior quarter, while its revenues declined 13.6 percent compared to the same quarter a year ago.

• Coca-Cola’s third-quarter earnings per share fell 14 percent, as compared to the prior quarter.

• Goldman Sachs’ third-quarter earnings declined by 43.2 percent, as compared to the same period a year ago, on a 21.7 percent decline in its revenues.

• Johnson & Johnson’s third-quarter revenues declined by 2.3 percent, as compared to the prior quarter, while the company’s revenues missed Wall Street analysts’ expectations.

Note from Moneynews:

If you’d like to learn about Mr. Frazier’s analysis of important economic and geopolitical factors and how to profit during different types of investment environments, try a free sample of David’s investment-advisory service, The ETF Strategist. The service helped investors generate a 35.8 percent investment return since its inaugural edition on Sept. 18, 2007, through Aug. 31 of this year. In comparison, the S&P 500 Index lost 24 percent of its value during that same period.  Click Here to Find Out More.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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The exchange-value of the U.S. dollar rallied sharply yesterday and again this morning, after the U.S. Treasury Department reported yesterday that foreign investors purchased substantial quantities of U.S. Treasury securities during August. Specifically, the Treasury...
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2010-55-19
Tuesday, 19 Oct 2010 12:55 PM
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