Enjoying This Roman Holiday

 | Dec 20, 2011 | 11:40 AM EST  | Comments
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Eureka. This is what the market looks like when Rome takes a holiday.

We are seeing what can happen if you just simply take a look at the United States as an economic entity, wholly apartment from Europe. The world may need a cavalry to save Europe, but we can glimpse hope if we allow the strength of our economy to shine through what is most likely the eye of the European storm.

First, housing starts are red hot with multi-family home starts through the penthouse. While we would prefer all housing to be strong because we need supply, that's not the case. Apartment rentals are being built because when people finally get evicted from their homes they have to live somewhere. Still, this is construction and it puts people to work and that's just plain out bullish.

Second, Navistar tells you what's happening in the important truck market. We have a developing truck shortage in this country because of the aging fleet, but also because of the incredible demand to drill for oil, which requires trucks to get the oil to the railhead, to the pipeline or to the refinery. We have been saying this about Cummins (CMI), too, but no one has cared because Europe and China are perceived to be the only truck drivers, so to speak. So it hasn't mattered. Today it matters because of the Roman Holiday.

When oil goes up, all of the companies in the patch, whether they be the not-so-hot drillers like Nabors (NBR) and Weatherford (WFT) or the good oils like EOG (EOG) and Continental Resources (CLR). This group has an incredible ability to color the tape because it is such a dominant force in the new U.S. economy, overlooked in part because we always feel we are one day away from an EPA-mandated shutdown. That's something I am increasingly worried about because of how ideological the EPA is and how important it is for the green faction of the EPA to keep fossil fuels up to let alternative energy prosper. The only thing I really get angry about is that the EPA pretends to be objective and never admits that its bias is to keep fossil fuels at above-market prices.

Still, you can see how these companies can rally when people aren't betting that Europe's oil use won't drop because of the great recession everyone is focused on. Days like today remind us about the boom in this business and how, if it were just left to prosper on its own and traders weren't focused on oil going to $80 (the level I keep hearing if Europe freezes up)  you could have a multiday move on both the majors like Exxon (XOM) and Chevron (CVX) and the smallest players like Range (RRC) or EQT (EQT).

Needless to say, an oil-as-umbrella trade can suppress even the biggest coal bears, dragging up that ultra-depressed sector. . 

On these days when we are basking in Europe's lack of news, the auto and auto-related companies can jump because we are running at a terrific rate of sales here, much better than where we thought we be right now. Like oil and gas, autos are a strong point in the economy and they may need to hire more people to keep generating the sales they can have. But Europe is hugely important for them and is going very poorly. We avert our eyes on a day like today, though.

The rails can fly high because we are shipping so much by rail, whether it be oil and gas or autos or chemicals because of our are large ethane finds and other building blocks of the chemical complex. The rails were about to breakdown the other day, along with the rest of the transports, because we have to expect that worldwide commerce is breaking down. But the domestic economy is accelerating.

We know that the aerospace market is booming, but everyone I talk to is of the opinion that there won't be enough liquidity to give to the airlines to buy these planes. But on days like today, we see the order books and we figure nothing gets cancelled and we want to buy buy buy Boeing (BA) and all of the ancillary plays like Honeywell (HON), Precision CastParts (PCP), Allegheny Tech (ATI), Hexcel (HXL), United Technologies (UTX) and even Alcoa (AA). We are willing to forgive that Alcoa is setting up for a loss this quarter.

Now with the gift of cold weather we can embrace the retailers and give them the benefit of the doubt. Last week I heard that it is impossible that Macy's (M) and Saks (SKS) were doing well because it was so warm. That's why VF Corp. (VFC) and Deckers (DECK) fell off a cliff. Cold weather in the last weekend before the holidays could give all of these players a lift and it wouldn't shock me that PVH (PVH) and Ralph Lauren (RL) can get something going again.

I don't like tech in part because of Europe, but when a tech bear like JP Morgan comes out and says buy the semiconductor equipment stocks I sit up and take notice, especially after the Novellus (NVLS) transaction that showed there is real value in this sector. Don't forget that we also can see how these domestic telecom equipment makers can do now that the ATT (T) –T-Mobile overhang is at last lifted. It is so important that the spending begin again for these companies, but I think most wouldn't even care if Europe were doing its usual number on the markets. Oh, and at last some catalysts for Apple (AAPL), a win in a trade dispute vs. the Android and reports that the iPhone 4 may be sold out in many of the usual venues.

Finally there is something to be said about a new forecast from a research firm I value, ISI, which raised its US GDP forecast from 3% to 4%. That's enough to change the multiple we would pay for industrials if we didn't have such a big European drag.

Makes you wonder. What happens if Europe goes on holiday until New Year's? Who knows how high we can go? There's one problem, though. I have not seen any sustained period of more than a few days when someone doesn't do something stupid over in Europe that hurts confidence and dings their economies. I say ferme la bouche. Let us run for a couple of days, Europe. I promise to throw three euros in a fountain if you do.

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