The Rotation Begins

 | May 21, 2013 | 2:54 PM EDT
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Is there enough money to propel the banks and the cyclicals ever higher without crushing companies like Kimberly-Clark (KMB) and Kraft (KRFT)?

Can Wells Fargo (WFC) advance without hurting Coca-Cola (KO), or JPMorgan (JPM) keep running without getting to Clorox (CLX)?

We are at one of those moments like I remember in the 1990s where the issue isn't making money, but making more money than the other guy. When I was a hedge fund manager I was ferociously competitive and I would be in my stocks thinking I was making enough money, let's say in Alcoa (AA) and Freeport (FCX) and Honeywell (HON), and the growth guys would be in Microsoft (MSFT), U.S. Robotics and Qualcomm (QCOM).

I would sit there and curse at my screen because while I was making money, I wasn't making enough. They were outperforming and I was underperforming.

Until these last few sessionsm there was nothing zero sum about this market. Everyone was making money, just different degrees of it. But today I am seeing money coming out of the consumer packaged goods plays that we all know are inflated and going into banks and cyclicals.

This rotation's going on because people feel the economy's getting better, because they think Europe's bottoming and they think that interest rates are going higher.

What's that you say? You get that the cyclicals should be running. But the banks? Don't they go down on higher rates?

Normally they do. But it is entirely possible that we could get a yield curve where banks are able to make a lot of money putting that deposit money to work in Treasuries that give them a half-decent return, which they don't have now. That increase in net interest margin is what the big buyers of banks have been waiting for and it might be on the way.

Still, this situation has to be monitored closely. More money has to come in to the market to sustain these levels, let alone advance. That means we need the market to simmer, catch its breath and make sure that it isn't a gigantic fake out.

You know, I don't think it is. We've had too much of a run to consider it a fake out. Butit doesn't mean we can't sell off, with the speculative stocks and the consumer package goods and the biotechs leading the selling.

It feels like that's what is happening.

It would be a big and important change that indicates we are due at last for something more than just a 0.005% pullback. Maybe we get a sell around Memorial Day and take a few days off program?

Makes a lot of sense to me if this rotation continues.

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