If you want to know what the stock market's all about, look at Amazon (AMZN) . Today it announced it will create 100,000 new full-time, full-benefit jobs in the next 18 months in a host of states. While the entire market is down, this stock is screaming higher because it's what we used to think how stocks should react before the age of stagnation, derision and gridlock.
Let me explain. Ever since growth slowed, I mean really slowed, and the U.S. became episodic in its ability to expand the economy, we have desired a particular set of rewards from our stocks. First, we wanted a good dividend, a growing one that gave you a nice return versus the competition, namely Treasuries. Second, we wanted a large and meaningful buyback so the share count shrunk, and that meant there were more earnings to be had per share.
Third, we wanted the company to expand its gross margins, which typically meant either by harnessing technology to cut costs or moving manufacturing where it is cheaper, like to China, or most recently Mexico, because of its stable, inexpensive workforce with low absenteeism, state-paid health care and a huge currency advantage. Increased gross margins mean dividend boost and bigger buybacks. Sometimes it simply came down to "How many people can you fire?" The more, the better.
Fourth, we wanted a company help itself -- to do a spinoff of a slower division or a breakup because the parts were worth more than the whole. If they weren't, we either wanted the company to buy another company to get growth or be sold itself so that we could get a quick return.
In fact, if we didn't get something on that menu, we tended to want to avoid the stock because it didn't have what it takes.
What didn't we want? Some yahoo management that brought on a huge number of people while revenue growth slowed and expenses skyrocketed. The only reason why you would embrace those kinds of wayward stocks is if you thought an activist would come along and create some noise, perhaps generate a sale.
Why wouldn't we ask for more from stocks? Let's see, start with the macro backdrop. We had a Congress and president at odds who didn't agree on how to borrow and expand the economy and instead just let spending go on and on for areas that could produce jobs, mostly health care, without the help of the U.S. government. And when I speak of help from the U.S. government, what I really mean is either big bond offerings to build specific projects that could have a multiplier effect, like the interstate highway system under Eisenhower, or to make building easier for the private sector by making private loans more plentiful and have less regulatory interference.
In the absence of that help, we wanted to export to developing countries that were still growing, think Brazil, Russia, India and China -- remember BRIC? Or to Europe itself?
But in the last few years, Brazil has fallen off a cliff, Russia became persona non grata, India had lots of governmental red tape and China's been on an endless slowdown course. Europe's become a place of stagnation the likes of which we have never really seen.
So we lost those growth markets. Anyone staffing up for them has had his head handed to him.
And then there is Amazon. This reminds me of when we had companies that had so much business and so much room for expansion all you wanted them to do was grow so we could imagine great things. It's a business we all know that offers convenience, a bargain, fabulous customer service and products that we didn't know we couldn't live without -- think Kindle, think Echo. Not only that, but it doesn't stop. You're happy with overnight, how about same day? You're thrilled with the big break of Amazon Prime? Well, how about a credit card that gives you 5% off Amazon Prime purchases? (Amazon is part of TheStreet's Growth Seeker portfolio.)
You put all that together and you have a company that offers no dividend, no buyback, no layoffs to boost gross margins, and a hiring spree that would be insane if you didn't know that it needs every one of those people if it is going to meet the demand it has created.
At the same time, it is a company that has almost no viable competition and what it does have tends to be encumbered by bricks-and-mortar infrastructure that crushes them and makes them losers.
What does it get for being the opposite of pretty much every stock we have loved over this period of stagnation? How about a stock that just blew through $800?
Why this lesson on the success of Amazon? I think the stock and trajectory of Amazon show you a path that many other stocks have taken since the presidential election. The industrials, for example, are rallying because of a belief that demand has to get stronger because there is a sense that Washington isn't in the way and the president-elect wants to work with businesses that hire in the United States, that put people to work here. Sure, we joked this morning about how Trump would likely say he's getting an Amazon Prime card because they are hiring so many people here. However, there is some logic that demand is picking up in this country.
Last night, Delta Air Lines (DAL) said business got better in the month of December, something that United Airlines (UAL) said the other day. KB Homes (KBH) , a national homebuilder, said things had gotten better since the election, too. In other words, demand is stronger, and if demand is stronger, then a lot of things follow that aren't about dividends and buybacks and activism and takeouts and spinouts.
The market will be drawn to these kinds of stocks, not the staid companies that have been loved for so long for their consistent slow growth and decent-sized dividends. It is a seismic shift in stock picking, of which Amazon is the most extreme of things.
This is the same reason why we have this incredible oddity going on of this year versus last. Our main fixation last year was the Fed. What were the governors going to say? Did they really believe the Fed could hike even as business seemed weak or that there were crises, one after another, overseas? Are they signaling hike? How many? Oh no. What's Yellen saying? How about Fischer?
Now the narrative has totally changed. We care more about who goes up the golden elevator to see President-elect Trump than we care about Fed-speak. Sure, he's taken on some targets, pharma being the latest, but at this point in Obama's elevation, I often thought, does he know any real business people, I mean know them to call on them and ask them what they need or tell them what he needs? Did he know business people?
Trump's the opposite. Say what you want about his style or grace, if you think having business people surround you will help you produce more jobs, as I do, then you are going to see a lot more growth, a lot more stories like Amazon, and a lot fewer stories about firing people to make the numbers.
Yes, it's a different paradigm. This market is buying the stocks of companies where demand seems to have picked up, and these companies are anticipating that demand with spending on growth, not on all of those other artificial ways to boost stock prices.
Sure, Amazon's an outlier. There's never going to be another Amazon. And companies' bottom lines will be boosted by lower corporate taxes and repatriation gifts and deregulation. However, the ones you will want to buy will be those with so many customers that they have no choice but to spend to meet that demand. Anything else and I fear you may have a loser on your hands, one that won't keep up with this brand-new, demand-driven market.
