Will The US De-Couple? Or Is It Time To Re-Couple?

Posted by on Dec 12, 2011 in Uncategorized | No Comments

Maybe, but not in the way everyone seems to think.  Haven’t we already decoupled?

YTD stock returns in the US are 0% for the S&P and Nasdaq, and the Buffet owned DJIA is actually up 5%.

Euro Stoxx 50 is -18% YTD with Germany outperforming and Italy underperforming (it is basically the same performance whether expressed in $’s or Euro’s since YTD the FX rate is basically unchanged).

Outside of the Euro users, the UK is down 7% and Switzerland is down 10%  (again the FX rate versus $’s is finishing very close to unchanged on the year).

Russia, possible “savior” of Europe is down 20% or so depending on the index and is slightly worse when adjusted for FX moves.

Closer to home, the Canadian stock market is down 11% in loonies and 14% when converted to USD.   Argentina is down 27% and 32% respectively.  And finally there is Brazil.  For another potential “savior” of Europe, it is down 17% in local currency terms, and 24% in $’s.

Japan is down 15% for the year, though with currency appreciation it is only down 12% for the year in $ terms.  The Hang Seng is down almost 20% on the year.  The CSI 300 index is down about the same (which seems strange for another “savior” country to be down by so much).

Even South Korea and Australia are both turning in -10% returns in $ terms for the year.

The final BRIC country (that are supposed to save Europe) is India, down 22% in local currency terms and a whopping 35% in $ terms.

So, could the US de-couple?  Sure, but maybe we will just finally catch up to the rest of the world.  The US stock market has outperformed the world this year.  It seems just as easy that we decouple by other markets outperforming – especially since most people talk about the opposite occurring.

The data while better, is still not great (jobs seem to be getting created, but part-time sales clerks for the holiday season is not going to sustain a massive rally) and for all the talk about the US economy and data, we had Intel warn today, following Dupont and Texas Instruments warning last week.  We seem to take record corporate profits as a given, but that should be questioned.  Banks will also not benefit from DVA this quarter (unless something really bad happens in the next two weeks).

Another possible concern is that the dollar has been improving relentlessly since August.  DXY was around 74 from April until the end of August.  Great for exports.  It is fast approaching 80 again, which isn’t so good for exports.

We have decoupled, so I would be worried about re-coupling, or that we decouple in a bad way.  The “decoupling” theory seems very priced in global stock markets so be careful using this as a reason to get too bullish.