Pessimism Is Far Too Easy

 | Feb 21, 2013 | 5:30 AM EST  | Comments
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Housing and autos: the twin pillars of the recovery. How much trouble are they really in?

This is the theme of the hour, and when we're faced with smoking hot numbers that might be cooling --and I acknowledge that fact -- I like to go back to why they might be good in the first place.

Right now there are plenty of projections that the U.S. might be building as many as 1 million homes. Weyerhaeuser (WY) said that the other day on Scott Wapner's "Fast Money Halftime Report." This number is considered to be a big deal. But we could probably use 50% more homes, given the dearth of inventory in California, Florida and Arizona -- and that's especially if immigration reforms are made and the birthrate keeps coming back.

Simply put, 1 million is not a stretch goal. Despite the National Association of Home Builders' newfound cautious outlook, and because of the Toll (TOL) conference call -- which was actually positive -- I don't think the country will have a problem topping a million homes. That's just good news for this economy that keeps getting factored out.

We are also betting that the U.S. could have as many as 15 million cars made this year. Now, again, this is regarded as a goodly amount; it's the over, so to speak. But, similar to housing -- for which, a few years ago, we built a fraction of what used to be built -- we are still trying to catch up with demand that's left. We only built 9 million cars a few years ago. Now the fleet's older. There are more people. Gasoline costs more, too, so you need to buy a new car to guzzle less.

In other words, yes, we may see a temporary impact from the end of the payroll tax holiday and higher taxes for the wealthy. But these two trends, autos and housing, are not running out of long-term steam even if some think a market breather is upon us.

During days like Wednesday and today, it's very easy to pronounce that every good trend is in jeopardy. I couldn't believe how many execs said yesterday that the sequestration is going to hurt them. It was almost as if they broke out the fiscal cliff memo. Would they have said this if the market had been flat? I don't know. A lot of self-fulfilling political thinking has been part and parcel to this market ever since President Obama was first elected.

But I come back to saying there's innate pent-up demand, and it's not going to be put on hold because of the changes in taxes or because of sequestration.

It's always right to worry about trends when the stocks are toppy. You get gun-shy. You might have wanted to buy Toll at $28 going to $38, but you never seem to want to buy Toll at $33 after it's already been to $38, right? Plus, given that so many people are chartists, our reaction to any stock that has gone up and then come down is that a head-and-shoulders pattern is upon us. They hit up the chart, it's hideous, and they back down.

So the stock loses its always-skittish defenders in no time. There were genuine pieces of the Toll quarter, like average price of homes sold, that I didn't like. The company's been a beater of the numbers ever since things started to get better, so it is logical to question whether the string is over.

But, as I wrote the other day, we have seen so much forgiveness in this market. So why should we think that, in a few days, it won't be forgiven again, especially as Toll approaches -- say -- $30 to $31?

Or do you mean to tell me that the only opportunity in this stock market comes from companies that report perfect quarters and are on an endless northern trajectory and that everything else is inedible? Would you say the market is a perpetual motion machine and that now the motion can only be down? Is that what just happened? If a stock is down, it must stay down?

That certainly hasn't been the case until yesterday.

I just don't think you can presume that two down days means the end of the rally -- and I am presuming a bad day today, or even one or two more down sessions. I certainly don't think the big theses that have brought the market here -- autos and housing -- are now dead because Owens Corning (OC) and Toll Brothers missed Wednesday, or because Ford (F) missed not that long ago.

It just seems way too pat to me. I am from the school that said we ran too much, that the declines are always sharper than the advances and that the market is shaking people out. We are now going to hear sequestration horror stories into the end of the month, and that then the market could be ready for another advance, because the trends that brought us here aren't going away that easily, even though some of the points the market just put on sure are.

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