Posted by Davy Bui on October 18th, 2007 in Market Commentary, Stock Research

Buried in the back pages of the Wall Street Journal was an article about the Treasury International Capital (TIC flow) report for August. August saw a record net outflow of $69.3 billion in capital leave US financial markets. The Financial Times had an even smaller article about it with little color added but there you will find that the previous record was set in March 1990 at an amount of $21.2 billion.

What does it all mean? Honestly, I don’t know if this is the fire alarm for the US dollar. It’s interesting to note that the US dollar didn’t fall through the floor until September so that month’s TIC report will be very interesting.

I can say that the weakness in the US dollar and the Fed’s earnestness to save their cronies at the expense of 300 million other Americans has affected my investment strategy. As I noted in this month’s View From Main Street column, I delayed an investment in American Capital Strategies (ACAS) due to these reasons. A cursory examination of the foreign capital markets only reinforce the notion that many investors are looking abroad for returns. Even the silly talking heads in the financial media have been parroting the large-cap recommendations most exposed to international markets.

Last night, I spent a little time looking at American Eagle Outfitters (AEO). On a pure cash flow basis, the stock looks attractive and in the most probable downside scenario, they’re priced around intrinsic value. Of course, if they manage to just float or slide only moderately, AEO looks undervalued to me with a bitsy dividend to boot. But the retail space has always seemed a minefield to me — tastes are so fickle (including my own). And with total exposure to the American consumer and a heavy reliance on the in-house label, 4% interest doesn’t look so bad.