A Furiously Responsive Market

 | Jan 22, 2014 | 3:43 PM EST
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It's all happening in real time. It's happening now, unfolding at the speed of light.

That's how this year feels so far, and it is shocking people and catching many unawares.

Just think of these amazing arcs we are looking at -- arcs that are all unfolding as the news comes out, many of them at crosscurrents with what had been said just a few weeks, days, or even hours prior.

Case in point: Apple (AAPL). We have seen analyst after analyst judge this company based on an unknowable factor: How is China doing? Is it good, is it bad? Is it liked? Is it hated? Where she stops, nobody knows. It got to the point at which it meant nothing to know how Apple -- Apple the company -- was really doing as an entity. Instead, it was all about the number of people in line at some Chinese phone store.

Then, suddenly, we get a lightning-bolt tweet from old-time activist Carl Icahn, a huge Apple holder, about how he's fed up with the company, particularly the company's board. He says he's bought a ton more of stock, a gigantic amount, $500 million over the last two weeks, bringing his position to $3 billion dollars' worth of Apple.

Immediately it's the tweet that shakes the moorings of the world's largest company, and the whole China debate means nothing. It's all about Icahn. Then he goes on Scott Wapner's Half-Time Report and gives one of the most memorable business-television appearances since Icahn's clash with Bill Ackman on Half-Time. In the segment, he says Apple is disgraceful for not buying more stock back, given that the shares are incredibly cheap and that it is governed poorly, and he says he's going to put pressure on the company. He charges that Apple has an imperial board, and that he wants change. A letter is to follow, laying down the gauntlet about a company that he says is a no-brainer buy.

In a one-two punch -- a tweet and a TV appearance -- we are reminded that regardless of the day-to-day vicissitudes, the stock is cheap and there's serious agitation about to occur.

So much for China.

Case in point: IBM (IBM). Here's a company that has the Oracle of Omaha's Berkshire Hathaway (BRK.A/BRK.B) as its largest shareholder. This is a company that's got lofty goals that Warren Buffett clearly believes in. Buffet has liked the stock because it is cheap, and because it has a tremendous buyback program.

He's an icon. The stock is an icon. There's only one problem. Last night we learned that IBM is faltering and faltering badly, putting up extremely disappointing earnings and sales. Sure, IBM might hit its long-term earnings-per-share targets, but the company is doing it with buybacks and tax rates, not with revenue or cash flow.

To me IBM has become the absolute opposite of what Buffett likes now, and what he used to studiously avoid: a company outmoded by better mousetraps. I went back and looked at a 1998 interview Buffett did with Bill Gates, of all people, and in it he says: "I look for businesses in which I think I can predict what they're going to look like in 10 or 15 or 20 years. That means businesses that will look more or less as they do today, except that they'll be larger and doing more business internationally."

With that in mind, Buffett said he likes to focus on "an absence of change." He said that meant trying to "figure out how an industry or a company can be hurt or changed by it, and then I avoid it." He then went on to say that's why he liked Wrigley (now majority-owned and operated by Mars) and Coke (KO).

But now here we are, 16 years later, and Buffett owns 6% of a company that looks to be a victim of whirlwind and wholesale change -- a casualty of the cloud, of mobile and of social, the trinity of disrupters that I write about in Get Rich Carefully, that IBM seems helpless to combat. To make matters worse, IBM set out a five-year vision of earnings growth. Now, according to the skeptical analysts on the conference call, it seems as if IBM will find it very difficult to meet those goals.

So you have to ask: What's Buffett doing in this stock in the first place? That's especially given that revenue and cash flow, the ultimate mother's milk of earnings per share, are diminishing before our eyes. I question whether there is still great value in the brand of IBM, especially when it all seems to be done with low tax rates, and seeing as the only unequivocal positive I heard on the conference call had to do with good pension investing.

Case in point: oil. Until a few days ago, conventional wisdom had it that U.S. oil was landlocked, causing a glut of infinite proportions that was putting tremendous pressure on our independent oil companies -- firms that had been darlings for most of last year. Our oil companies had been receiving a price per barrel that has been, at times, as much as $30 below the world price, or Brent index. That's been a boon to the refiners, who are able to take our cheap oil and refine it, and then sell it at a price that's in sync with Brent crude.

Suddenly, today, we hear about the opening of a new pipeline from TransCanada (TRP) that can help alleviate the glut. Instantly the oil companies that have been hammered -- such as Continental Resources (CLR) and EOG (EOG) -- burst up. The refiners, like Valero (VLO) and Holly Frontier (HFC), which have been so red-hot, immediately went ice cold. Real-time. Just like that. And this might just be the beginning of this move.

Case in point: natural gas. We know that, longer-term, there's a huge glut in natural gas in the U.S. But short-term, brrr, it is cold. Thanks to that, stocks that have languished of late, because they are sitting on mounds and mounds of nat gas -- stocks like Cabot Oil & Gas (COG) and Linn Energy (LINE) and EQT (EQT) -- take off like rabbits being chased by dogs at the track. But you want a real-time corollary? Natural gas prices have shot up so much that utilities, if they can, are now switching to coal in order to save ratepayers money. That means shares of the Norfolk Southern (NSC) railroad, with its heavy coal-based business, get an extra spur after they were already buoyed by the company's good quarter. At one point the stock was up 5!

Case in point: the telco-equipment makers. They could do nothing right for ages and ages. I'm talking about the companies like Juniper (JNPR), Ciena (CIEN), Xilinx (XLNX). Now they can do no wrong. Juniper has got an activist barking. Ciena, which missed the quarter badly, is now brimming with orders. As for Xilinx -- which we will hear from momentarily -- the company gave tepid guidance and the stock was immediately quoted down 5%. But next thing you know, people realized that outfits like Verizon (VZ) are spending like mad, and Xilinx went from a dog to a darling in less than 24 hours.

Case in point: Dow Chemical (DOW). On Tuesday morning CNBC had on Dow CEO Andrew Liversis from the World Economic Forum in Davos, Switzerland, and I was listening to him talk about how he's doing so much to bring out value -- and, frankly, it was falling on deaf ears. Dow is well behind PPG (PPG) and DuPont (DD) in accentuating the proprietary positives while eliminating the negative commodities, thus giving us Mr. In Between. But next thing I know we are hearing, in real time, that primo activist Dan Loeb has taken a stake in Dow and is pushing for the break-up. A dead Dow springs to life as if by magic.

Final case in point: Last week we were supposed to throw away our bonds, and interest rates were presumed to go higher. In the last 48 hours we've seen the interest-rate-sensitive stocks -- the dividend plays, the master limited partnerships and real estate investment trusts -- roar back to life in a manner not seen for months. Again, it's nascent. It's real-time.

Yep, not virtually overnight but actually overnight. Not slow-motion but in as-it-happens. Not time-lapsed but instant. That's what this market has been since the year began -- and, judging by the crosscurrents of the last 24 hours, if you want to be successful, you've got to be able to surf the riptide.

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