Oracle’s earnings tells us more about currency effects

This week’s note highlighted USD currency headwind risk.

So, Oracle’s ‘currency headwind’ equated to nearly 15% of its quarter’s earnings.

No small change and it is a factual effect that the U.S. Dollar’s strength is having on American corporate earnings.

An extract from Oracle’s Q1 Fiscal 2023 earnings transcript is,

“The currency headwind this quarter was much higher than the 3% headwind that was present when we gave guidance. It was actually 6 points, even though due to rounding, it may look like 5%, and that’s a currency headwind to total revenue. It was, in fact, 6 points. And yet, we still exceeded our forecast on a reported basis, and we beat our constant currency revenue forecast by $200 million. We saw similar currency headwinds in EPS, which had an $0.08 negative effect, much worse than the $0.05 headwind present at the time of guidance in June.”

But with present USD strength being extended and stretched, in the spirit of positioning for ‘where the puck is going to be’, I’ll look for the contrarian effect to company earnings in the coming quarters.

In the meantime, well run Japanese companies should be ‘minting’ profits from their increasing competitive position of having a monumental weaker Yen.

September 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Bitcoin sentiment

On November 18, 2021, I wrote this note implying a peak in crypto currency mania with the news that a company called Crypto.Com paying $700 million for 20 years naming rights of a Los Angeles sporting arena.

This news was indeed such a harbinger that the peak was already in process, as the chart below shows….for only a week prior Bitcoin did peak at $69,000.

When you can’t analyse an asset by another means, anecdotes count for something.

p.s. I don’t know how a 71% decline is considered a ‘store of value’.

p.p.s. for the speculators, the dearth of interest in Bitcoin is suggesting it is nearing a new trough.

September 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Contracting P/E Ratios – European Value

I prefer ‘value’ (rather than growth) stocks being in distress because balance sheet analysis is an added and viable tool.

While there are surely holes in the argument that the ‘E’ (earnings) forecast may still be lowered, I think this market is in the general vicinity of favouring buyers, more so than ‘sellers’.

September 15, 2022

by Rob Zdravevski

rob@karriasset.com.au

Graphic Source: Bloomberg | Jean-Charles GAND

Convergence is also happening

Here is a story of convergence to the mean, not reversion.

The chart and graphics below show the Gold price (in USD) trading sideways for 2 years while the 200 week moving average has risen $300 or improved by more than 20%.

It has converged towards the oscillating price of Gold which has spent a couple years digesting and consolidating.

I’m preparing for a further 4% swoon from its current $1,706, down to around the $1,640 mark.

September 14, 2022

by Rob Zdravevski

rob@karriasset.com.au

For the contrarians, fund manager’s are bearish

This week’s Bank of America survey highlights include,

Fund managers are “super bearish” with average allocations to cash at the highest since 2001, with 62% being overweight cash;

A net 42% of global investors are underweight European equities, the largest such position on record;

A historically high 52% of respondents said they are underweight equities;

Of the polled 212 investors overseeing $616 billion in assets from Sept. 2-8, said 72% of those surveyed said they expected a weaker economy next year, and the most crowded trade was long U.S. dollar.

https://www.bloomberg.com/news/articles/2022-09-13/bofa-survey-shows-nadir-in-stock-allocations-amid-recession-fear?sref=qLOW1ygh

September 14, 2022

A trade for the ages….Sell USD / Buy JPY

The chart below shows the U.S. Dollar at a historically stretched moment of strength.

Such extreme percentages above its 200 week moving average coupled with weekly overbought readings also coincide with a peak in the Australian 2 year bond yield and a trough in the CRB (commodities) index, to only mention a couple.

September 14, 2022

by Rob Zdravevski

rob@karriasset.com.au

Another FANNGM is doing it

The Nvidia (NVDA:US) mean reversion is almost done.

It doesn’t necessarily mean that its 200 week moving average is the place to buy, as it may overshoot to the $103-$115 mark…..

this chart did tell you that it was dangerous chasing and buying this stock at stretched valuations as it soared way above its 200 WMA.

September 14, 2022

by Rob Zdravevski

rob@karriasset.com.au

The effect of currencies on income statements

And the corporate effect of what todays earlier currencies post translates to…..

Aussie companies selling products into Europe, the UK and Japan have been seeing weaker receipts, while those selling to U.S. customers or in USD denominated products (commodities) are booking handsome profits on favourable currency differentiation.

Japanese and European assets are considered cheap for holders of Australian Dollars while Americans (and their corporations) may see Australian assets as being ‘on sale.

Expect those respective benefits to wane while these ‘extreme’ currency movements correct and consolidate.

On a side note, the almighty strength of the U.S. Dollar seems to be a surprise……

2 years ago, I wrote this note when I remember reports of the pending death of the U.S. Dollar to be palpable.

Today, there doesn’t seem to be an opposite case against the bullish prospects of the U.S. Dollar.

September 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

AUD high against Yen, Euro and Sterling

It is an appropriate and strategic moment for Australian Dollar importers and/or speculators to sell (a tranche of their intended or required) AUD and use it to either buy Euro (EUR), British Pounds (GBP) or Japanese Yen (JPY).

The (multi-timeframe) bullish trend for the AUD (against these currencies) remains intact as they register 5-7 year highs against these crosses.

It’s more perverse that the AUD is weak against the USD….and whilst it finds a floor, a rise in the AUD/USD (DXY is Overbought) will aide a few more percentages for an additional tranche of buying more EUR, GBP or JPY.

September 12, 2022

by Rob Zdravevski

rob@karriasset.com.au

A different yield curve to watch

When the spread (or yield curve) of the U.S. 5 year government bond yield <minus> 3 month yield is overbought on a Weekly RSI, it closely (and tactically) signals a peak in the S&P 500.

The S&P 500 is not a peak at the moment. Buyers of put options and callers of an equity crash perhaps take note!

There were two exceptions in 2013 when this wasn’t the case. I’ll look into this a little later.

Incidentally, an Oversold yield curve isn’t an inversely reliable timing indicator.

September 11, 2022

by Rob Zdravevski

rob@karriasset.com.au

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