Seductive Words of the Fisherman Skeptic

 | Mar 19, 2014 | 8:04 AM EDT
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Maybe the end of this bull run comes when we have nothing to worry about?.

Given the unusual strength of this comeback, the second one of 2014, we have to puzzle over the nature of how we could continue to underestimate the ability of this market to power higher.

Before we do so, let me tell you how controversial even this simple inquiry might be. You think the words "unusual strength," you type the words "unusual strength" and you know that they, themselves, are fighting words. Rallies like we have had off of some truly hideous action are largely regarded as ephemeral, with the overall market being in a DOWNTREND. The artificiality of the moves higher vs. the veracity of the declines is an accepted truth. The notion that a reversal may have occurred isn't acknowledged.

It's a sedition narrative to discuss the comeback at all. I know I will take heat from it, both from the yahoos on Twitter and the people I am hanging out with here all set to bash Starbucks (SBUX) or Nordstrom's (JWN) or Seattle Genetics (SGEN) or Zillow (Z), all four of which are the subjects of tons of negative or skeptical or downright corrosive research. You would think that the run Starbucks has had is done with mirrors, that the 113 years of growth that Nordstrom's has had must end this year because of Amazon (AMZN), even if it hasn't been crushed by its crosstown rival yet, that Zillow will be outmoded by some site that doesn't yet exist and that Seattle Genetics is, well, a gigantic hype job perpetrated by a coterie of analysts stoking fervor of the great unwashed.

The criticism of those four are emblematic of the clever, sardonic, witty, corroded commentary that passes as brilliant skepticism. A broad negative narrative sweeps these four companies into its net, but it's the all-too-skeptical fisherman we need to examine before we debunk the notion that all four of these stocks deserve to join the soon-to-be-scrap heap of all domestic equities.

Understand how clever the fisherman who can't catch a rally truly sounds. Before he bothers to put his line in the water -- and I am using this analogy not just because the fish tastes really fresh out here and I am determined to chow down on some sushi before I get the redeye back -- he already has ready built in objections that makes sure the exercise of landing a few percentage points of gain is as fraught with danger as possible.

Here's how the negativity works in real life.

First, you aren't supposed to be fishing for points in these waters at all because we know that at any minute Vlad Putin's going to invade Ukraine and we are going to be stuck owning shares in a bunch of companies in a distinctly risk-off moment.

I find this kind of thinking shameful and antithetical to common sense. Will Putin make owning Merck (MRK) or Verizon (VZ) or Pfizer (PFE) or ExxonMobil (XOM) risky? Does he change the coloration of the future of those companes? Or most of the others we talk about? No, but this kind of lazy, pessimistic thinking is a staple of the era and has kept many people from taking "risk" -- with air quotes around risk -- as if somehow the 0.87% you get in a CD is less risky than the combination capital gains and income streams that the stocks made risky by Putin can give you.

Second, how can you invest in stocks when you must be totally suspicious of the whole move, especially when it's just a tool of a Fed and the Fed now has an unsteady hand at the tiller in Janet Yellen. This part of the narrative's become part of the big lie  that the companies wouldn't have any real profits if it weren't for the Fed and those profit streams are both propped up by the Fed and the stocks that have rallied because of those profit streams aren't honest. This fallacy rests on the concept that one day the banks will simply not take those Bernanke-Yellen-aided gains or that the gains will be carried around in a Weimar wheelbarrow.

You disagree with me? Pull your head out of the sand, you ostrich. We know that's been the conventional wisdom rap and even as whatever Yellen says or does hardly even influences the bond market, let alone the stock market these days, she's now become the new villain in the corrupt late-stage capitalism saga.

In truth, yes, rates are low. They are low because there's not enough demand for money. I think we're way too close still to the Great Recession to feel confident enough and, yes, euphoric enough to think and spend big unless you are in biotech or cloud-based tech companies because those have caught a secular wave that even many skeptics believe in simply because the stocks of these companies have tended to go higher.

Third, and finally, whenever the discussion about the stock market occurs it always begins with a simply inquiry: what are you worried about? What makes you not sleep well at night. What can go wrong? Those three questions set the stage for keeping your line in the boat or not venturing into water at all. As long as those are the questions that set the backdrop for the discussion of what to buy, then we know we are safer and less confident and less complacent then we are made out to be.

So, how about the matters at hand? Today I am seeing Starbucks as a remarkable growth engine and wealth creator. What's the thumbnail sketch there? High coffee prices are going to keep a lid on the stock if not crush it like coffee beans in a fine press. You say Nordstrom's? I say Amazon. Is there even a volley back from that? How about Seattle Genetics? Nothing but small, orphan drug stocks in that pipe as if somehow they never add up and yet orphan drugs have been responsible for some of the most powerful runs in the group for many years now. Zillow? Competition's going to crush them, even as they have, indeed, crushed the competition.

Now that doesn't mean I am sitting here blindly recommending all of these stocks. I am here to learn about them. Of these, I like Starbucks for the long haul and when it gets crushed as it does periodically, you do some buying. Nordstroms's is real tough because retailing's just plain tough with the growth opportunities hindered by the lack of need for new big box stores and the cutthroat nature of online shopping. But this company has a brilliant discount initiative and a darned good, incredibly fast growing dot-com. I am concerned short term about all of the froth in biotech, but when it dies down I think that Seattle Genetics has more going for it than any other non-senior biotech out there. Zillow? Expensive but it's been a winner and no one can deny that.

When can we just say you can forget these stocks and all others for that matter because they are part of a ridiculously dangerous cohort?

You know what? I am beginning to think this is an easier question to answer than I once believed. The answer is when we start the discourse of "what are the terrific opportunities out there to make money?" instead of  "what are you worried about?" When you hear "what stocks make you sleep well?" we know, at last, that the equity nightmare is about to begin and the sweet dreams we've actually been experiencing are at last at an end.

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