I'm tired of hearing about the Kool-Aid, as in "Cramer's drinking the Kool-Aid again about this market." I am tired of it on a day like today because, darn it, I know what the Kool-Aid looks like and this ain't it.
First, I actually covered the event where the phrase "drank the Kool-Aid" came from. That's right, back then, in 1978, I was working for the late and lamented Los Angeles Herald Examiner and I was assigned the Jim Jones case, yep, the man who lured 900 followers to their deaths in Guyana because they did drink the Kool-Aid. That concoction was laced with cyanide. This market? I think it's laced with some principles that many of you might find to be tried-and-true but are upended by the rhetoric that has those who praise the market next in line for the Peoples Temple potion.
So what are some old-fashioned, concrete methods that can call the poisonous tonic into question?
Let's start with the transports. It's one of the oldest theories when it comes to stocks that the transports have to confirm the Dow before you can trust a market, meaning that the transports have to make a new high along with the Dow before you can believe there's some solid grounding.
Well, guess what, Jim Jones callers, that's exactly what's happening. The stocks of the rails, the truckers, the freight forwarders and the airlines are leading the way and that shows the rally is backed by a burst in commerce. Remember my theory: I totally agree that there have been some animal spirits unleashed by our pro-business president, but it's the numbers themselves, not the hoped-for tax relief, that's driving things.
You can pick apart some of these. CSX (CSX) is going higher because of the possibility of a new CEO hell-bent on bringing out value, not that the old CEO was a slouch. Federal Express (FDX) is benefiting from Amazon's (AMZN) business. The truckers have lagged. (Amazon is part of TheStreet's Growth Seeker portfolio.)
I don't like to look through these matters because the texts say you don't need to validate the components individually.
But let's say you are a stickler. You still think it's Kool-Aid or at least Hawaiian Punch and you don't want to get hit. Then look at who is buying the stocks of all these airlines. None other than Warren Buffett. When was the last time you doubted his judgment. Yeah, I know, maybe he likes the stock of Coca-Cola (KO) too much and is wedded to IBM (IBM) and American Express (AXP) . I come back and say you don't get to be the Oracle of Omaha by rationalizing purchases to keep up with the averages and fellow money managers. Buffett's a buyer because he thinks there is value in the airlines. They are very inexpensive stocks relative to the rest of the market and because of structural changes in the industry they are wildly profitable.
Value is something that most don't ascribe to any part of this market. Yet, if Buffett's a buyer, am I going to sniff that he's some sort of yahoo who should be checking what he's imbibing?
Or how about the leadership? Do you know how many times we used to castigate this stock market because it was led by Facebook (FB) , Amazon, Netflix (NFLX) , Alphabet (GOOGL) and a couple of small cloud companies as well as the higher-yielding consumer-products stocks and a handful of biotechs? (Facebook and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.)
This market is the exact opposite of that. First, the best-acting group is the financials, especially the banks. There is no leadership better than the banks because these companies represent the gasoline to the system. If the bank stocks are going higher, it's a sign they are taking your deposits and either lending them out at good rates or buying Treasuries and buying back stocks and paying higher dividends than they currently do. Or both.
I think that with President Trump it might be both. The economy is heating up, the consumer price index came in hot today. A lot of that was the increase in the price of gasoline, which, believe it or not, is beginning to be a story about the massive exports of gasoline to Mexico and Latin America.
Doesn't matter because it's going to force the Fed's hand to raise rates a bunch of times. That's fantastic for the banks, as is the potential for deregulation that doesn't need congressional approval. Yes, a really healthy economy needs more lending, not banks just rewarding shareholders, but I can tell you that when I have seen the bank stocks go higher and be good investments, then commercial lending and economic expansion aren't far behind.
Now it would be one thing if we just had the banks leading. But the industrials remain on the new-high list pretty consistently. That's a sign of worldwide growth, not just domestic, and while the stocks are beginning to get expensive they won't be if the growth I am counting on overseas, reflected by all these markets flying high, comes through.
You know what else would support traditional benchmarks of reasonable valuation? The techs and the biotechs that have sat out for years and have actually become undervalued on actual earnings are doing the leading. Stocks like a Celgene (CELG) or an Amgen (AMGN) or a Gilead (GILD) or total Cramer fave Analog Devices (ADI) , which reported a fantastic quarter today. These are the left-behinds that have bided their time and now sell at levels even or only slightly elevated to the average stock in the market.
The housing stocks are doing fine, something that wouldn't be happening if the rates that are going higher were really knocking that industry for a loop.
Finally, the ultimate in undervaluation is when we have our prices validated by shrewd investors who take stakes in companies to bring out more worth or buy them wholesale. Last night we learned that Nelson Peltz and his vehicle, Trian, purchased an immense stake in Procter & Gamble, where I am confident he will be his usual engaged self and offer a reasonable blueprint to higher prices. Remember, in our research for all big funds that took stakes in companies and then agitated for change, only Peltz offered you coattails that beat the market, meaning that if you bought the stock of Procter after the announcement of the stake, history dictates you will make money.
Then we had Softbank, the huge and visionary Japanese investment firm, buying private-equity money manager Fortress Investment Group, giving you a 30% premium to yesterday's closing price. I think many people in this market might have thought Fortress was overvalued given how little we know of what it owns. Well, Softbank solved that valuation conundrum.
Look, I totally get that the Kool-Aid chanters are beginning to drown out my other followers in my Twitter feed even as many of them are probably too young to even know where the phrase comes from. What I have to say, though, is there are some classic metrics and signposts that would have you thinking that maybe, just maybe, the drink in my glass is Gatorade, the kind you drink when you are running a marathon, not a sprint, and it's spiked all right, not with cyanide but electrolytes that give you more power than any bear would ever expect.