Today’s letter begins by answering recent questions from several readers, questions that you might have been wondering about as well.
Timothy,
I have been noticing that the market has been moving opposite the U.S. dollar. As the dollar’s value increases the market’s value decreases. I would expect both the market and the value of the dollar to rise in tandem when the U.S. economy is perceived as strengthening, and decrease in tandem when the U.S. economy is seen as weakening. Why would the market be moving opposite the value of the dollar?
Thanks,
Ken
Ken,
Thanks for asking. One of my frequent topics of discussion concerns the fact that the stock market is ALWAYS looking ahead, and that people who try to use TODAY’s fundamental data to invest are doomed to failure. In short, therefore, the market is not moving in tandem with the dollar’s actions of today because the market is looking ahead.
To get into it deeper, the global economy is enormously complicated. In addition to the value of the dollar versus something (the something you’re looking at), there’s also the value of the dollar versus other things (other currencies and hard assets like copper and gold). Then there’s our federal debt, the perceived intentions of the Federal Reserve, corporate earnings, the likelihood that consumers will resume spending, swine flu, the growth of China, the cost of the in-process health care bill etc., etc.
To sum up, you shouldn’t focus on just one metric … but if you do focus on one metric, it should be a stock’s price chart because THAT reflects all those other factors, as perceived by the actual investors with skin in the game … and they’re the ones who matter.
Sincerely,
Timothy Lutts
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Mr. Lutts,
Why are the vast majority of your Cabot Stock of the Month Report picks in a currency that is gradually losing value? It does not make good business sense.
Example: Since the early 1970s, the U.S. dollar has declined from buying 4.32 Swiss Francs. Today it buys 1 Swiss Franc. More recent example. Just a few years ago, 85 U.S. cents would buy 1 Euro. Today you need $1.50 to buy a Euro. You get my point?
It would make more sense to look for stocks of the month in countries with strong currencies and exceptional growth. The USA does not fit the bill. Otherwise, it appears that you are playing to the home crowd.
Helge
Helge,
Thank you for writing. I get your point. But there are far more factors involved in selecting attractive stocks than the strength of a country’s currency. The U.S., despite all its well-publicized troubles, remains the most entrepreneurial major economy in the world. Thus many of the best growth stories in the world are found here. For companies growing at double and triple-digit annual rates, a little currency loss is no big deal.
You will, of course, note that Cabot Stock of the Month Report also has recommended a number of Chinese stocks, and if you’d like more of these, I recommend Cabot China & Emerging Markets Report, which also features stocks from Brazil, India and Russia.
But back to the question of the dollar. In my experience, when everyone thinks alike, everyone is likely to be wrong. It seems to me that we may be nearing the point where everyone assumes the value of the U.S. dollar will keep declining. When we reach that point of perception, the downtrend will end.
Sincerely,
Timothy Lutts
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Hi,
There are many, many e-letters like yours. I’ve been told by the “smart people” that picking stocks that are recommended in letters and newsletters sent through email is a bad idea. They say it’s done to bring a stock up in price beyond what it’s worth so you can sell shares that you already have. I really would love to trust you guys. Would you comment on that?
Unsigned
Dear Unsigned,
Certainly. Many small operators do indeed like to use press releases and pseudo recommendations in an attempt to push up stocks that they own … or that their clients own. In fact, if you get these promotions in the postal mail, I recommend that you look at the fine print; postal regulations require that the mailer disclose how much they were paid by the promoter to push the stock.
We don’t do that. Never have, and have no reason to.
Our core products are the nine investment advisory services that we sell to tens of thousands of individual (and professional) investors all over the world. The oldest is the Cabot Market Letter, published continuously since 1970. (I just calculated that I’ve had a hand in more than 700 issues of the Cabot Market Letter.) Subscribers who find value in these newsletters renew their subscriptions, and I’m very happy to serve them.
This Cabot Wealth Advisory, contrarily, is free, and you’re smart to be concerned about the value of something free. Free often implies a “catch,” or an ulterior motive. Well, my ulterior motive is simply this; I’d like you to become a paying subscriber to at least one of our newsletters. To persuade you to consider that, I offer valuable content in this free letter and then promise that you’ll get much more in the paid newsletters.
Now, you don’t have to buy anything. You can keep on reading these Cabot Wealth Advisories just as long as we keep sending them, and I won’t mind. I happen to think the content in them is valuable, especially considering the price.
But I will point out that there is a certain lack of continuity to the recommendations found here in Cabot Wealth Advisory. For example, last week I recommended Dr. Reddy’s Laboratories (RDY), a big Indian pharmaceutical company focused on the global generic drug market. The stock is acting well, and I’m optimistic that efforts to control health care costs will lead to a bigger market share for generic drugs.
But I may not mention Dr. Reddy’s Laboratories here again, so if you bought based on that recommendation, you’re on your own … and knowing when to sell can be even more important than knowing what to buy. So if you want to be kept up to date on the stock, I recommend that you take a subscription to the newsletter that originally recommended it, Cabot Top Ten Report.
Subscribers to Cabot Top Ten Report not only get a recommended buying range for each of the 10 stocks that appears in every Monday’s issue, they also get follow-up tracking in every issue, so they know whether to buy, sell or hold.
Note: These Top Ten stocks are hot! For all Cabot Top Ten Report recommendations from January 1 through September 28, the average one-month return works out to a 38.9% compounded annual return.
For all Cabot Top Ten Report recommendations from March 1 (the market bottom) through Sept 28, the average one-month return works out to 76.3% compounded annual return.
Sincerely,
Timothy Lutts