Sam Ro| Aug. 14, 2012
One of the themes during the current earnings season has been the dollar, which has strengthened relative to other currencies since a year ago.
Many companies with significant overseas exposure have reported that revenue took a haircut due to the strength of the dollar.
"The negative correlation between macro-level EPS and the U.S. dollar is both theoretically and empirically clear," writes Citi economist Steve Wieting. "Profits earned abroad are reported in depreciating or appreciating terms, boosting or reducing profits.".
But blaming a stronger dollar isn't telling the whole story, argues Wieting. From his recent note to clients (emphasis ours):