Seems Like Old Times

 | Nov 13, 2013 | 1:33 PM EST
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Right now, right at this very moment it feels like the old days in the stock market. What were the old days like? Let me tick them down.

First, Europe's down and China's down but, after an initial knee-jerk reaction from the spillover of the futures, the market has righted itself. Why? Because like the old days, the U.S. is the center of the universe. Europe can tighten, it can slow, it can do what it wants, but at this very moment, it isn't falling off a cliff. And that is what matters. 

The bulls definitely want Europe stronger. The bulls have the U.K. on their side -- there may be some tightening needed because the economy is so strong. But what matters is that Mario Draghi, the European Central Bank president, is in total Ben Bernanke mode. So employment can eventually thrive, although that will require some work-related rule changes. 

Still, Spain's out of its depression, the European banks are coming back and China's trade with Europe seems to be on track. Mind you, we must watch for a slowdown in China. Lately, the Baltic Freight Index, the measurement I use to gauge Chinese economic activity, seems to be saying that it is not so hot. But the thrust of my thought is that even though both markets, the European bourses and China, are down, they can be shaken off -- as they used to be when we didn't care all that much about them. This is all very welcome. Anything that breaks the linkage, anything that doesn't make us hostage to these difficult continents and to the communists who are constantly trying to assert their power is good news.

Second, we haven't heard anything new from Washington lately and that's a real godsend. In fact, all we have is bad news about the Obama healthcare plan and, like it or not, bad news about the healthcare plan is good news for business. The more trouble the plan is, the less likely it can hurt business. Moreover, anything that weakens the president's hand means fewer tax increases, even though you know he's itching to put some through. That's excellent news for the aspiring and the wealthy consumer. 

The momentary break from horrendous partisanship and government by angry children is allowing confidence to build and gives businesses a chance to launch. Now, like the situation with Europe and China, this will not last. I believe that as we get closer to January and another huge budget fight, this will start all over again. I also think it will be worse because of how poorly the president's healthcare plan is working. I think that the Republicans really smell blood and it will be vicious when the midterm elections roll around. Anyone who is not focused on Washington is making a mistake, as it will definitely cause a 5%-7% decline. But it's still too far away to put in the calculus. 

Third, oil is so positive right now. This decline has put about a $1,000 into the hands of every driver. That more than offsets the increase in the payroll tax that we were all fretting about. We don't talk about it enough because we can't pin it down directly to what people spend. But we know that it has to help because it's about disposable income. I think it's one-for-one in the spending department. Now, the bulls don't want oil to move down too much lower because then you would see a substantial part of the market, everything connected to oil and gas, get hammered. They can't lose the cohort. But still it's major to see gasoline at a two-year low. 

Fourth, we are getting a better yield curve. What does that mean? OK, take the average five-year CD rate, which, according to Rate Watch is 0.82% -- the same it has been for ages. But the five-year CD itself? That's at 1.4%. That's a huge net interest margin every time a bank issues that crowd-pleasing piece of paper. We know that Wells Fargo WFC told still one more gloomy story today about mortgages but the banks make the best kind of money on CDs and on fees. Those have no risk and a ton of reward. That's why every time we see rates go higher, we see these banks go higher. We like risk-free streams of income, not risky ones. Anyway, the actual margins of the bank are going higher just from the layoffs. Getting the banks in the plus column is certainly fabulous news because the  group is so big and important for the market. 

Fourth, the Twitter (TWTR) hangover finally seems to have run its course -- thank heavens. The pressure on Zillow (Z), LinkedIn (LNKD), Yelp (YELP), Trulia (TRLA) and a lot of the Internet darlings, including, of course, Facebook (FB) has been so powerful for the last week that we lost a group that had been integral to the success of the stock market. I think they will now bounce back, including LinkedIn, which offered guidance that I believe was just way too downbeat. The quarter was darned good if you look under the hood. I believe that the Twitter hangover actually extended all the way to Google (GOOG), which is finally catching a bid after some serious floundering around. 

Finally, the individual action that makes for the transfer of negativity from Europe and Asia just can't happen all that easily. Just think of what we got today. How long have we been fretting about the consumer? It didn't matter that Costco (COST) said the consumer is spending. Didn't matter that Best Buy (BBY) said she is spending or GameStop (GME). It didn't even matter that The Gap (GPS) gave a rosy forecast last week. 

But today, when the nation's largest department store chain said that things are good and got better all quarter, it left you with a very positive feeling about the holiday season. This was not something people were talking about even as recently as a month ago. The ripple effects, the pin action off Macy's M is just too huge to be contained. Remember, Macy's isn't Del Frisco's (DFRG), the high-end steak joint that just told us things are going gangbusters. Macy's represents the great middle that was supposed to be crushed by Washington, D.C. It hasn't been. Don't forget what Macy's sells: clothes from VF Corp. (VFC), PVH Corp. (PVH) and Ralph Lauren (RL), accessories from Michael Kors (KORS), luggage from Tumi (TUMI) and so many other suppliers that must now be doing better than we think.

Or how about this airline deal between AMR and U.S. Airways? I know that people feel that after a day's run, the good news is now "priced into" the stocks. But any analysis of airline mergers shows that the big gains in the stocks occur after the merger and the lead-up gains are small potatoes vs. what happens after the combination. I think that will be the case this time, too.

I also like that many of the homebuilders and home related equities are building on yesterday's gains. We lost that cohort ages ago. It would be terrific to have it back.

Oh, and what else can be said about a market where Starbucks (SBUX) has to write a couple of billion dollar check -- much more than anyone thought -- to Kraft (KRFT) -- and yet the stock is up!

I know, I know, these are all one-offs, but a lot of one-offs can create an atmosphere of good news that is wholly separate from Europe and China. And this is what must happen if we are going to shake off their blues.

Remember, we are still in the grips of the money management imperative. When the market looked down in the morning, that spurred a huge amount of chatter from hedge funds to get in when the getting was finally good, on a potentially second down day. But the group think was powerful and the supply dried up pretty darned quickly as demand flooded into the market place. That's what happens every time you are up 20% coming into November.



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