An Absurd Disconnect

 | Dec 01, 2011 | 12:50 PM EST
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It really is pretty ridiculous that you only need to look at the CurrencyShares Euro Trust (FXE) to figure out where the market stands. I just watch every tick and its impact, and you can see it best in stocks like Cummins (CMI). If you overlay the two, you can see that Cummins moves up quickly when the FXE ticks up a few pennies -- and, of course, a vice versa.

For myself -- someone who actually knows what Cummins does and knows where it sells -- this correlation is nonsensical to the point of painful. Cummins is leveraged more to the environmental regulators of the world than it is to the euro. It is more leveraged to the Chinese reserve ration -- and to the price of oil. Trucks with Cummins' engines are needed to move that oil to tanks and trains.

But it doesn't matter. The truth will keep you in chains. If Europe collapses, people figure that Cummins should collapse with it -- because, well, it collapsed last time on the "liquidity event."

I don't mean to pick on Cummins. You could talk about Caterpillar (CAT) or DuPont (DD) or any of the industrial names. All industrials are trading off the FXE.

In fact, almost all stocks do. The only ones that don't are the gold stocks, which seem to be leveraged to something different every day, and the utilities, which have been fabulous safe havens for some time now. They're terrific places not for parking your money but for making money. I was so excited this morning to speak with Tom Farrell from Dominion (D) this morning -- but this stock just works its way higher, irrespective of the European hostage-taking. Tom likes to keep the dividend high, he buys stock when it gets hit and he diversifies into many forms of energy. He does these things in order to please his multiple constituencies, rate payers, stockholders and, most important, heavy-handed regulators.

Not the FXE.

We all know what's most upsetting here. It's that we have no ability to game the FXE. It's literally just something that goes up with whispers and hushed tones and rumors and newspaper stories.

So we have fabulous American companies that aren't leveraged to the euro that happen to have stocks trading with the euro, and we have no idea where the euro is going to be traded.

It's just a terrible disconnect that we now live with every single day.

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