NEW YORK (Real Money) -- When basketball players are out of position they get taken to the cleaners. When football defensive backs cover the wrong man they get toasted. When baseball players play the ball wrong, they can cost you the whole game.
On Thursday, you saw what happened when portfolio managers got stuck with the wrong stocks and had to adjust or rotate, lest they fall behind the averages.
For much of the last month I have been focused on the giant sea change that I said portfolio managers do not yet see coming -- the sea change out of the shares of companies that benefit from a strong dollar and into ones that thrive when other currencies get stronger. This is that broad rotation out of domestic safe havens like retailers and restaurants and rails into the big international companies that are headquartered here, but have a huge amount of sales overseas.
I feared that when the portfolio managers realized that they, like pro defenders that are radically out of position, their moves to correct would be vicious and punitive to the domestics and heavenly for the internationals. That's just what's happening.
Why is it occurring and how do we profit from it? First, understand that it is occurring because the rest of the world's become stronger while we have stayed the same or become weaker. Europe, in particular, has turned quickly after its central bank changed the rules and took interest rates down so low that money had to either go into the stock market or into projects that good give you a much better return.
Both are bullish for the real economy, either through the wealth effect or because of stepped up lending. We saw that in this country when our central bank executed a similar game plan.
In the last month we have seen so much good news out of France and Italy and Spain, that you have to acknowledge the turn. That's why the European stock markets have double and triple the return of our averages.
Strong economies act like magnets. You want their stocks and you want their currencies.
So few portfolio managers saw this coming, though, that they totally ignored the move. They overlooked the bottom in the euro as witnessed by the ETF that goes by the CurrencyShares Euro ETF (FXE). That was the bottom that occurred when the euro didn't take out its low back in April 13.