Howard Simons
Finally, many of the larger components of international trade, such as petroleum and metals, are priced in dollars. Here, the currency risk can be minimal for the firm, but not minimal for the firm's customers: Consider how impoverished the South Asian customers of Caltex, the joint venture between what were then the separate companies of Chevron and Texaco, became during the 1997 Asian crisis. Petroleum products priced in dollars became unaffordable for reasons of income loss as well as for the collapse of the Indonesian rupiah, Thai baht, Malaysian ringgit, etc.
Back to 30,000 Feet
The reader's question above cannot be answered except on a company-by-company, currency-by-currency and industry-by-industry basis. Perhaps we can turn it around and ask which S&P industry groups' stock prices relative to the S&P 500 have benefited or been hurt most by the dollar's gyrations against the euro since the end of major hostilities in Iraq at the start of May 2003. The test is quite simple. The performance of each of the S&P 500's 113 industry groups against the S&P 500 itself is regressed, or explained statistically, against the euro. Only 38 of these groups, or one-third, have a statistically significant relationship against the euro at the 90% confidence level, which gives us 9-to-1 odds that the euro really is an explanatory variable for the sector, either positive or negative. The most positively correlated of these groups, unsurprisingly, is gold, a group consisting solely of Newmont Mining(NEM Quote - Cramer on NEM - Stock Picks) for the S&P. The least positively correlated group is Employee Services, a group consisting of Monster Worldwide(MNST Quote - Cramer on MNST - Stock Picks) and Robert Half International(RHI Quote - Cramer on RHI - Stock Picks). The correlation map by sector is depicted below. Positive values mean the performance of a group relative to the broad market either increased as the euro strengthened or decreased as the euro weakened, which indicates that the group benefited from the falling dollar. Negative values mean the group's relative performance either decreased as the euro strengthened or increased as the euro weakened, which indicates that the group did not benefit from the falling dollar. To view a larger version of these charts (in some browsers), after clicking on the "larger image" link below the chart, mouse over the lower-right area of the chart until the icon with four arrows appears. Then click on that icon.| The Euro and S&P Group Relative Performance |
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| Click here for larger image. |
| Source: Bloomberg, Howard Simons |
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