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Bill Gross: beware of falling euros (PG, KO & DD)

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Writing in The Washington Post , Pimco head Bill Gross warned of the effect the falling euro will have on American companies such as The Procter & Gamble Co. ( PG , quote ), The Coca Cola Co. ( KO , quote ) and Dupont ( DD , quote ), among others, that derive much of their earnings from Europe. Is this overblown?

For corporate America, Gross cautions that, "a majority of U.S. companies in the Standard & Poor's 500 earn close to 50% of their revenue from global cash registers - and the euro zone has the largest one. Unhedged currencies for these companies, such as Procter & Gamble and Coca-Cola, will result in reduced profits as their euros buy fewer dollars in exchange."

While a 50% risk factor seems scary, it flies in the face of estimates from firms like JPMorgan that refine the numbers to look at Europe in itself -- and not a vague "global cash registers" approach.

On that basis, JPM thinks the impact on profits in the S&P 500 may be as high as 1%, even if the euro crashes.

Naturally, this forecast may be too optimistic, since it does not account for follow-on damage created by a slowdown in orders from Europe to China, for example, depressing Chinese companies' appetite for raw materials.

But nobody -- not even Bill Gross -- really expects consumption in Europe to drop to zero or U.S. companies' revenue to be cut in half overnight. If that happens, we will definitely have more to worry about.

In the meantime, U.S. stocks have actually been declining faster than the euro, as a look at the chart on SPY versus FXE reveals.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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