D.C. Holds a Wall Street Sale

 | Jun 11, 2014 | 2:23 PM EDT
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They're baaaack!

That's right, Washington, with all of its horrendous overtones and confidence destruction, is back on the front of the business pages and, as you can expect, the markets have taken a tumble.

Yep, the Wall Street Journal's lead headline "Tea Party Upsets GOP No 2 Cantor" took peoples breaths away and had many a buyer turn seller.

I can't blame them. Do you know that every single big decline in this market since the generational bottom, every gut-wrenching bone-crushing selloff of more than 5%, has been caused by worries that Washington will do something terrible to the markets or actually has done something horrible that has caused a sickening decline in business?

Every budget fight has hammered the market. Every passage of any tax. Every debt ceiling debacle. Every government closing. Every missed grand bargain. Every bit of grandstanding. In fact, every time one of these pols grabs a microphone we seem to go down.

On the other hand, think of what it been like since Washington ceased to be a factor and the politicians acted like grownups, increasing the debt ceiling and arriving at a compromise, ridiculous as the sequester was, that eliminated rancor.

Just the notion of several days of not having to worry about Washington has rebuilt confidence. The president's been able to focus on foreign affairs, knowing he can't get much done with a Republican House. The Republicans in the House are checked by the Democrats in the Senate. No one can do anything and the rate of spending has slowed. Sure, the expiration of long-term unemployment benefits has hurt the market, as has the cutback in food stamps. The slight rise in taxes hasn't hurt as much as many thought, although it certainly comes part and parcel with the lack of any stimulus coming from the administration, despite stubborn joblessness and stagnant wages.

Even the Federal Reserve has receded from view, even as the cottage industry of Fed watchers refuses to admit it. We know that because, despite a strengthening economy and a tapering of bond buying by the Fed, rates have stayed stable or trended down just when we would expect them to go higher.

And then along comes this shocking news of Rep. Eric Cantor's firing by his constituents.

Put aside for a moment that Cantor's a bid of a quizzical fellow. The man I identified as the Congressman from "Squawk Box" pretty much played both ends, making Tea Party noises, but taking Wall Street's money. He was clearly unpopular in his district or you wouldn't have a challenger, Tea Party or not, do as well as the unknown college economics professor David Brat did, winning 56% of the vote, a real trouncing.

The fact that Brat's an admitted Tea Partier stunned those who thought that the Republicans were moving toward the center. From that point it is worrisome because the center has yielded the compromises that made it so the economy was not hostage to bone-headed things like a rejection of the debt ceiling increase, which is tantamount to a default on our great nation's obligations, or the endless dead-end lost-cause fight against Obamacare. And like it or not, it has been a law-of-the-land-lost-cause for these rejectionists.

But posit something with me for a moment.

Do we really care what the coloration of gridlock is? Do we really care right now how Washington ceases to be important? Yes, we like it quiet down there. But first, this is just a primary and maybe it wakes up the moderates. Second, this time around the economy is better, so Washington can do much less damage, even if it is rancorous.

That said, we have been rallying and rallying and rallying and I think it's time for a breather. June's historically a tough month. We have a vacuum of information now where we don't have a lot of earnings. We sense things are better in the economy, but we can't be sure and we know we need our trading partners worldwide to show more life.

Most importantly, valuations have gotten richer without a more current status report of how the companies are doing.

In short, this Cantor upset is a terrific excuse to take profits. It does make sense in a very kneejerk way. I mean, I know I jinxed us yesterday in a major way when I turned to my partner David Faber and said that we have had such a sustainable run because we haven't had to think about Washington and its endless destruction of nascent rallies.

I also think that the surprise factor won't be over in a day. Once Washington gets on the front page of the business papers it doesn't get off easily. I am sure we will hear plenty of chatter about how next year's debt ceiling battle will be a bruiser again as that seems like a real cause celebre of the Tea Party. We will no doubt hear more bashing of the president from Republicans who fear for their seats following Cantor's defeat.

And we are already hearing that immigration reform is dead because Cantor embraced some form of resolution.

I do worry about debt ceiling hostage-taking. That's really bad for business, a total confidence wrecker. But that's strictly a cross-that-bridge-when-we-come-to-it situation and we aren't even on the road yet to have it happen.

Bashing the president? So what? Right after the midterm elections we will only be talking about Obama's replacement, not Obama himself.

Finally, immigration reform? You might want it. You might not. But one thing is certain: it doesn't mean much at all for what we pay for stocks. That's being determined by the profits of the companies, the dividends and buybacks they offer and the prospects for their future growth, none of which is inhibited by a Cantor defeat.

Now, I don't want to be blind to some of the other events around the world. For example, the World Bank lowered its growth forecast last night. That hurt Europe's bourses and we need Europe and European stocks to do better. Iraq seems in danger of collapsing with insurgents taking over Mosul. Many thought Iraq might be able to double its oil production in a short period of time if peace is maintained in that fragile state. We have to take that off the table. But all that does is make the oil companies I talk about so many times, the ones that are plumbing the Permian, the Bakken and the Eagle Ford with great success, into even better opportunities.

So, we see the rallies in pioneer Natural (NRP), EOG (EOG), Cimarex (XEC), Concho Resources (CXO), Continental (CLR) and Anadarko (APC).

But in the end, I say use this breather as the pullback that allows you to put money to work with the longer-term themes I so often express: aerospace, biotech, natural and organic foods and the best of the ecommerce plays and, yes, oil and gas. Always oil and gas. Don't be aggressive. This Washington stuff can't disappear overnight. But remember, even when Washington actually destroyed confidence stocks did come back. That means stay the course, find the bargains and slowly but surely pick at the best of the best as Washington gives you still one more opportunity to buy stocks on sale, even as the companies that back them are doing just fine, thank you. 

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