This Sell-Off Is Business as Usual

 | Nov 07, 2013 | 3:44 PM EST
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Ah, there's the rest of the market, too. Yes, that's right, there's a whole other market of 6,000 stocks that aren't Twitter (TWTR) and today we are seeing a true roiling, a roller coaster of up then down and then down harder that could only send shivers over all those who didn't get some Twitter at $26 to mask the pain.

And a lot of today's action is a bit of a throwback to yesteryear, or at least the last couple of years, because today the United States economy was only one piece of the puzzle. Much of the weakness, though, started elsewhere -- specifically, in China and, more important, in Europe. Qualcomm (QCOM) and Whole Foods (WFM) are bringing their own bit of jaundice to the tech and growth cohort. And finally, we have bubble talk writ large, in large part because of Twitter, and you know that's always been a terrific reason to sell, as I will explain later on.

First, the big industrials that have been all the rage of late have come unglued today and I think that's because of rumors that China's building up such a head of steam that the government might have to tighten to slow the economy. I don't know how much credence I put into this theory. But remember, it doesn't matter. People are selling everything animal, vegetable and mineral that goes into China, and will probably continue to do so tomorrow unless the rumor's spiked by the authorities, and I don't think it will be. Remember, the marginal price of the various worldwide commodities are set by demand in China, not here, and demand would certainly cool with government intervention to slow the economy.

But far more important today was an interest rate cut by the European Central bank to ensure that the economies there don't contract and deflation doesn't set in.

The Europeans have long memories and they know that in 1920 Germany caught the deflation bug as there wasn't enough money in the system to support any economic activity. That led to hyperinflation as Germany turned on the Deutschemark printing presses and that destroyed most of the nations' savings base. The European authorities often view that deflation-hyperinflation cycle as a proximate cause for the rise of Hitler and the Nazi party and they will do anything to avoid a repeat of what occurred, so they will be willing to take extreme actions, like the interest rate cut to zero that we got this morning.

This move caught some people off guard even as I heard people saying, "We are waiting for a surprise rate cut," just a few short hours before we got the news.

As soon as it happened, the euro, which has been incredibly strong, just plummeted and the dollar shot up, which caused dollar denominated commodities to get crushed. Coming right on top of a mandated slowdown in China, it spurred the decline in oil, and we are seeing that is crushing all of the independents, even the ones that are doing fabulously. I think the reversal in fortunes is a buying opportunity for these stocks, but given how some really were surprised by the rate cut, I figure tomorrow's the day we start getting serious downgrades and we get better prices then.

But there's also some unnerving action away from the commodities. We have a real rout in tech in part because of Qualcomm. Frankly, while Qualcomm should have some spillover, the selloff is a tad mystifying, especially if you believe in the power of Twitter, you should believe in the power of social mobile and cloud stocks. Yet those are some of the hardest hit of all the stocks in the market today. I think people are presuming a worldwide slowdown in tech spending because of Qualcomm and are acting accordingly, as if this is the ultimate bellwether of the group. I don't think it is, but people get scared when they see a company they revere (and Qualcomm is, however falsely, revered), and it's getting people to bail from so-called lesser companies.

And the market's not immune from what's going on with Whole Foods. When you get a terrific growth company that signals the economy's getting weaker, therefore, sales aren't so hot you extrapolate and say, "Wait, I thought the economy was strong, maybe I am wrong, let me out of here." You also have a propensity to be reminded of the risk of owning high growth stocks that the big decline in Whole Foods demonstrates, so why not take something off the table. Think of all of the analogous companies that Whole Foods gives you cover to sell. Shouldn't we be a seller of Starbucks (SBUX)? Isn't Michael Kors (KORS) too high? Can you really still own Hain (HAIN)? Funny, isn't it? I picked these three because they are very expensive stocks that just reported and shot the lights out and yet they are down. They are down in sympathy, even if they shouldn't be down at all given the outstanding earnings. Oh, and shouldn't Chipotle (CMG), which sells Food With Integrity, just like Whole Foods be down, too? Sure is!

Of all the reasons for today's sell-off, perhaps the most insidious is an overwhelming sense that the party's over, that it ended today when a company that should have been worth $14 billion, as it might have been valued two weeks ago, turned out to be worth more than double, or at least traded at more than double. Yes, the top callers were out in full force when Twitter opened at $45.10 fully $20 above what anybody thought it would trade at not that long ago.

Now, I am not a top-caller. I hate the whole notion of "OK, now that retail is in the pool, at last, after this big run, courtesy of Twitter, then I know it is time to sell." Still, though, I have been hearing it all day.

But you can frame a justifiable mosaic. First, the cult stocks are all being smashed. Tesla (TSLA) and SolarCity (SCTY), two of the four most overvalued stocks in the firmament, along with Netflix (NFLX) and Amazon (AMZN), are being whacked and whacked hard. They've been bubblicous forever.

Second, Twitter itself is siphoning off money. I think that the people who own highly valued stocks are selling those highly valued stocks to buy this highly valued stock.

Finally, there's a sense that Twitter demonstrated an insanity not in Twitter but an insanity in the market as a whole and that it's as good a time as any to cash out. Why not? No bell goes off at the top but isn't Twitter a pseudo bell?

What do I think of all of this? I have to tell you that I think it is business as usual. We have many stocks that have moved up a great deal as this market's been pretty much one way higher for months now. We are due for some selling and a combination of justified weakness in bellwethers Qualcomm and Whole Foods with unjustified strength in Twitter is just too ironic for many pros to ignore.

I am looking for the ones they are throwing away because in the end I think it is business as usual. We are in the midst of a growth-stock sell-off. They are always vicious. When they are happening, they always feel like the end of the world. They last for three to four days. Today feels like day two and nothing more than that, particularly because the bonds are tame and rates seem to have stopped going higher. My Charitable Trust is picking away at names tossed out in disgust or fear.

Just like we always do.

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