We've Got a Real Blind Spot

 | Jul 01, 2013 | 11:37 AM EDT  | Comments
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Pent-up demand? A sense that the worst is over? The recognition that Onyx Pharma (ONXX) stands for a typical undervalued equity? Some European PMI numbers that show life in Spain and Italy? Japan doing  better? Consolidation in TV and cable? Stocks like Best Buy (BBY) left for dead at the beginning of the year getting even more support today?

Or simply that for one shining moment we are not thinking about the Fed and playing the ridiculous guessing game about its next move, which no one knows anyway.

Probably a little bit of everything.

You have to be amazed at the resilience of this market. The articles today were endlessly downbeat as always. The articles are always downbeat. The "Ahead of the Tape" column in the Journal is so typical of what we have to fight against, that endless corrosive negativity that makes it so hard to make money. In the meantime, those who are simply buying the favorite groups, like biotech and health management companies, just make fortunes. Why can't there be articles about those?

I know it is a new quarter, but I find myself exhausted already by those who think it can't last or those who don't understand the power of the animal spirits, particularly if we get some lift in Europe. Sure, China's bad. But any turn in Europe could be extraordinary for the markets.

Meanwhile, how many times have we read bad articles about the banks, about how they do poorly in a higher-interest-rate environment -- not true, it depends on the particulars of the environment -- or that they are going to be regulated into oblivion. If you read the media on the banks and, for that matter, the insurers, you would be missing out on what could be considered a once-in-a-lifetime opportunity. They have earnings momentum and the wind of the net interest margins at their back. Why isn't this talked about? All we were supposed to be focused on was improving net interest margin. Now that we are on the cusp of getting it, the NIM doesn't matter? Oh, give me a break.

Ask yourself where are you going to get a 50% move in any part of your portfolio besides stocks, which is the percentage you got by owning Onyx, which I have loved as a company because of both its anti-kidney cancer drugs and its anti-multiple myeloma franchise. It was there for the asking and all you needed to do was look at how Amgen (AMGN) had lost its growth. Now multiple other bidders will surface as the company's for sale. That's' all happening without the recognition of wonderment that is so deserving.

Now I don't expect Celgene (CELG), another big rallying name, to stay strong in the face of the Onyx bidding. If that company gets a powerful suitor, it might take share from Celgene. But the inability for anyone in the conventional media to take the time to understand the power of the Regeneron (REGN) story drives me crazy. The company not only has, by far, the best macular degeneration drug, a solid anti-cancer program and perhaps, most amazing of all, a novel way to cut cholesterol for the millions of us who are allergic to statins. All we ever hear is how "ridiculously overvalued" the company is. That's because it has come out of nowhere. But it irks me to no end that people don't understand that it deserves its rally. So does Celgene, which sells at about 10x 2015 earnings. How can that be the same as Merck (MRK) or Pfizer (PFE) given its much faster growth?

Or how about this Mallinckrodt (MNK), which came public today? It's a spinoff of Covidien (COV), which has already given you a gigantic gain and now it can focus on its own growth prospects and get the respect that it deserves for its injectable franchise and its non-addictive pain killer potential. But who cares?  

Just think of what you never see written or rarely hear talked about. There's a remarkable resurgence in the transports, particularly the rails, which says so much about where we can go. The rails act well because commerce is picking up. But do you ever hear that? Sure, small business isn't doing that well, but why not take your cue from the transports and from CEOs like we heard last week, notably those from Ford (F), Boeing (BA), Macy's (M) and Starbucks (SBUX), all of whom are saying that the U.S. is much stronger than expected. Why do their voices not matter? Why does only CNBC pick up what these people say? Is it verboten to talk about what their judgments are because they are said on TV?

Why does it fall to a vacuum that Starbucks sees green shoots in Europe and is going great guns in China and instead we focus on China and Nike (NKE). It is so hard to go against that. Or how about when Macy's and PVH (PVH) say spending is strong and instead we hear about a weakened consumer. I get that some part of the consumer world is weaker at Macy's, but just go and listen to what Restoration Hardware (RH) said on "Mad Money" and you will recognize that the highest-end consumer is spending like mad either on vacation or on redoing rooms. Sure, that's one or the other. but you would think it was neither.

We tend to view all of this consolidation in the media as a series of one-off events. Here's John Malone's Liberty Media (LMCA) circling around Charter (CHTR) after buying Virgin. Here's Gannett (GCI) buying Belo (BLC), which, by the way, is one of the proudest old-line media names in the book. Or Tribune (TRBAA) buying TV stations. Or Dish (DISH) attempting to take Sprint (S) and Clearwire (CLWR) away from Softbank, but it just didn't have the firepower. But the idea was certainly the right one.

Aerospace never faltered. Never. We had endless pieces about how the Dreamliner was a disaster in the making. But we got no commentary after Jim McNerney came on "Mad Money" and said that you can't get a new one until 2019. That just makes Honeywell (HON), Precision Castparts (PCP) and United Technologies (UTX) such buys. We were supposed to fear sequester, but when it didn't matter no one gave it a second thought. It was a fear put to rest that, as always, doesn't matter once it is put to rest.

How about the amazing retreat in the grains complex. A year ago I couldn't get up without reading a piece about how inflation was going to rage because of the disastrous corn crop. There wasn't enough and the subsidized ethanol industry was bidding it up.

Now corn's just getting hammered. It's the cornerstone of the food chain and it doesn't matter? We don't care that it goes down now? Only that it goes higher? How can that be? The Fed can only get away with this huge balance sheet because there isn't a lot of inflation, so when we see something not inflationary we better be symmetric. But of course we're not.

Sur,e housing can get weaker. Rates did go higher. I am sure that some wanted to take action and failed to do so and now must feel left out. Of course, that doesn't mean there haven't been buyers and it does mean that those who are finally above water can sell their houses without penalty. Nor does it mean that people will stop trying to strike out on their own simply because they missed the low in mortgages.

We do have to endure the possibility of declining momentum in housing, but the gains are so huge that I don't think that the stocks will languish very long as the market will circle back to what it wants to look at. The gains will be palpable in the second half because the slowdown will quickly right itself because the crowd that is buying has no ability not to. They need homes. They have to move into them.

So, we endure the negatives, we obscure the positives and it goes on and on and on there's nary a word about how that just might not make sense. It's a ridiculous blind spot that shows no sign of changing any time soon.

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