No Desire to Argue With Billionaires

 | Feb 19, 2013 | 7:00 AM EST
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People like to fight the tape. It's a natural instinct, given that stocks have been such mediocre assets for so many years. The buy-the-dips, sell-the-rips attitude has been the winning them since 2000.

But it isn't winning now. If you'd sold the rips, you'd have sold a ton of stocks a long time ago. The charts are breathtaking now, with breakout after breakout all over the place. I'm seeing them in housing, hotels, lumber, semiconductors, construction equipment, cable television and entertainment, healthcare, consumer packaged goods, packaging, chemicals, drugs, biotechs, retailers -- you name it.

The lack of even a pause to refuel is about as unprecedented as I have seen in all of the years I have invested. It's as if there is a supply shortage up here, with no stock to be found and none to be shorted, so the buyers just keep reaching and reaching and then reaching for more. The rips and have been sold and resold, and it doesn't matter. The dip-buyers have been left at the altar, or for the slaughter, if this market doesn't do some tumbling soon -- or at least some flat-lining to catch its breath. But certainly not its breadth, which it has in spades, hearts, diamonds and clubs, while we are at it.

But everything, every breakout, every spike, pales in comparison to what's driving so much of this market behind the scenes. That's the urge to merge, the rush to get married, even the desire to elope on weekends -- something we haven't seen in eras long since bygone.

So I guess we shouldn't be surprised that two ne'er-do-well companies that tried to merge 15 years ago -- OfficeMax (OMX) and Office Depot (ODP) -- are back at the altar again. In 1997, the Justice Department blocked this merger as being anti-competitive, since it would have led to a duopoly between Staples (SPLS) and Office MaxDep or whatever.

These days it's vital to keep both in the game, because the office-supply business has become a mainstay of everyone from Wal-Mart (WMT) to Best Buy (BBY) to -- most important, where I get all my stuff – Costco (COST).

Sure, this is no surprise, particularly when we have a Justice Department that seems as pro-merger as any Republican antitrust Department I have ever seen -- except that, of course, it's made up of Democrats. But I think what makes this deal all the more intriguing is that, as with so many other stocks that have gotten bids this year, these two had already been huge, huge winners. OfficeMax shares had doubled since August. I know, big deal; Office Depot had tripled in that time.

During the sell-the-rips days, both of these stocks would have been sold and shorted 50% ago. Plus, we know that the principal clients of these places, small businesses, are supposed to be dying in the vine -- aren't they? Isn't President Obama squelching the small-business job-creator with higher taxes, as the Republicans love to charge? Maybe he is -- or maybe he just isn't squelching hard enough yet, because otherwise you wouldn't be seeing these kinds of moves ahead of the mergers.

In other words, business is strong enough to merit companies talking to each other about combining, rather than thinking that if they just stick around and compete, it's almost a matter of time before the other guy keels over. Hmm, maybe this OfficeMax/Office Depot merger is between two companies that failed to keel over. More important, though, it is a merger borne of confidence -- confidence that, despite the runs in the stocks, there's much more upside because things are just plain better out there than we might realize. The confidence says that, even though the stocks are up from where they were, they are down huge from when the good times were being had.

That's a seminal theme behind almost all of the deals we've been seeing. It's worth talking about the commonality of the breathtaking number of takeovers -- because they were supposed to have fizzled already, as they did last year, rather than apparently ratcheting up.

Lets start with Heinz (HNZ). You know what got me about this deal? It wasn't that Warren Buffett, via Berkshire-Hathaway (BRK.A), saw the intelligence in buying a company with a brand that means ketchup worldwide. It was that this merger hadn't happened a long time ago. Here's Heinz increasing earnings per share year after year, expanding internationally, and yet kept down by frozen foods and a slowing restaurant economy. The darned thing has been ripe for the taking for years and years. It always amazed me that it hadn't happened.

The bears always chide the optimists as complacent and lacking in rigor. Yet, not that long ago, when I questioned a Goldman Sachs analyst who put a sell on Heinz, nobody I know thought it odd that such a terrific company would be sell-rated. After all we've been zero-summing around here for ages, and if traders are reaching for Manitowoc (MTW) and Terex (TEX), not just Caterpillar (CAT) and Deere (DE), you know that it's no time to own Heinz.

Warren Buffett, however, doesn't care for or about rotations. He cares about brands -- lasting brands that sell for less, like some sort of consummate wholesale buyer -- and now Heinz is his. Who was really complacent here? I say it was the Goldman analyst who stayed too negative.

Dell (DELL)? You really think Dell's that much different from Heinz? I don't. Here's a stock that's been left for dead -- no, maybe even pronounced dead -- and yet it simply refused to die. Too much cash. Too much cunning. Yet did anyone care? Yeah, founder and CEO Michael Dell cared. He cared like Buffett, and now he's in a huge fight with people over pennies on the dollar, even though we'd be tripping all over ourselves to high-five anyone who just caught a 35% move. Dell will get his man because, alas, his man is Dell!

Virgin Media (VMED), the third-biggest deal of the year, is once again emblematic of the flaw of the sell-the-rips strategy that had been so brilliant for so long. Virgin Media had already jumped, and jumped big, before it got its bid from Liberty (LBTYA). The odds-on move would have been to short this company, especially in light of the weakness being shown at Newscorp's (NWSA) similar properties. But it didn't matter. Weakness now means strength later, at least to Liberty, and who is to argue with CEO John Malone? That's like arguing with Michael Dell and Warren Buffett, a trio of billionaires I don't feel like arguing with.

Certainly no more than I want to argue with billionaire Rich Kinder, the CEO of Kinder Morgan (KMP). He is taking advantage of the market's ridiculous valuation of oil in the ground vs. in the pump, and is stealing Copano (CPNO), which couldn't be given away the day before. Or maybe you want to have a slugfest or at least give a lecture to billionaire Larry Ellison, CEO of Oracle (ORCL), for his bizarre purchase of Acme Packet (APKT). This is a telco stock that had been a free-fire-zone short, virtually a short-seller's annuity stream for almost two years now.

I don't feel like arguing with Ellison any more than I want to argue with Kinder or Dell or Malone or Buffett. I do, however, want to find the stocks that the next billionaires are intent on buying. When the richest are doing the buying, I don't know about you, but it makes me a heck of a lot more confident.

Oh, and do you mind if I throw in one more billionaire, Brian Roberts -- CEO of Comcast (CMCSA) -- buying the rest of NBC Universal from General Electric (GE) well ahead of when he had to? He's another guy I don't feel like arguing with. In part, of course, that's because I work for him. But, more important, it's because I respect him and what he and his father have built, and they don't like to part with a nickel unless they can make a dime off it.

Yes, you can see what's happening here, can't you? The tax-haggling is behind us. The sequester bark is worse than its bite, if there will even be one. Finally, confidence is back, particularly among those who have the most dollars to back it up. I know the first person to say RIP to sell the RIPS will be hit with a gigantic selloff right in his face. But let's tell the truth. Waiting for a dip in the face of pool of liquidity brought on by the fire hoses of Buffett, Dell, Ellison, Kinder, Malone and Roberts is like waiting for the Pacific to run dry. I'd just rather dive in and join them!

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