If you take away everything we want to buy, you are going to take away the bull.
That's what happened today where there simply weren't enough sectors worth buying which causes the tsunami of selling you get today.
Let me go over the what I mean about not having enough to buy and you will get what I say immediately.
First, let's start with tariffs. The president is slapping tariffs on a huge number of Chinese goods to stem intellectual property theft. It could be $50 billion, it could be $60 billion. Whatever. You have to understand that any company with a substantial business in China is shaking right now. The president had said he would do this if China didn't show some sign of pulling back or doing less to target not only aluminum and steel but our higher tech businesses. I don't know why people thought he wasn't serious. Perhaps because the President chose a globalist as is national economic counselor in Larry Kudlow? I have been saying that Larry a former senior colleague of ours and my old partner on Kudlow & Cramer most likely got the job only after agreeing that we should target China. In fact, if you were a globalist you might feel good that the tariffs are really meant for China and not the rest of the world. It was more of a positive than a negative for me because I knew he was going to hit China but in the back of my mind I thought he might hit Germany, too.
The problem is that we don't know what the Chinese are going to hit. Are Starbucks (SBUX) lattes going to double in price? Are there going to be huge tariffs on Caterpillar (CAT) tractors and Cummins (CMI) engines? As much as they need Boeing (BA) planes maybe they throttle back the airlines that need Boeings and hold back and get at the end of the line for Airbus vehicles. Maybe they target GM (GM) ? Last year GM sold more 4 million vehicles in China which is a third more than they sold here. How about Otis elevators from United Technologies (UTX) , a gigantic number are sold and serviced there versus the rest of the world. I could go on and on. It would take almost as long as the list of goods that Trump wants to put tariffs on. I don't know a serious industrial that doesn't have a huge business in China. You aren't a big industrial if you don't. That's how important that market is to the likes of Caterpillar or General Electric (GE) .
Second, one of the reasons why we got so bulled up about 2018 is that the rest of the world was in synchronized growth. But this morning we got some pretty weak industrial numbers out of Europe on top of some weaker figures out of Japan. Almost every European bourse got hit hard today pretty much like ours. We would have probably been down just on Europe. The stocks of the European banks have been getting crushed. That's a terrible sign. Yesterady we gave up in Europe for my charitable trust telling club members of actionalertsplus.com that we didn't want the exposure any more, that things had gotten too weak over there.
Yesterday I posited to our banking expert, Wilf Frost, that perhaps Banco Santander (SAN) was the strongest bank in Europe and he didn't blink or blanche. Given all of the banks in Europe that we think of as strong that actually are not this tacit admission that Banco Santander is doing the best is really saying something. It was a joke for a long time. Now it's on top.
Without a synchronized economy but with a Fed rate hike yesterday there were plenty of people wondering if the U.S. economy is going to slow down regardless of the new Fed chair's growth optimism. Rates plummeted today just when you would have expected that rates could go higher given Jerome Powell's positive tune. When short rates go up banks make more money. But when longer rates go down bank stocks get hammered.
That's what happened today. Bank stocks took it on the chin. Really ugly. Bigger and smaller banks were annihilated.
How about tech, 26% of the S&P? It couldn't have been worse frankly. The Chinese are huge buyers of our tech and its not just Apple (AAPL) . Many of our tech companies have been selling into China for years and you have to wonder if China isn't going to just plain stop allowing the sale of iPhones. I think that's far-fetched but you have to be thinking that could occur. The stock's been crushed for days.
Every tech company covets China and fears of number cuts are way too prevalent for anyone to step up and buy.
It gets worse. I liked the apology that Mark Zuckerberg offered to the New York Times and CNN yesterday. Good start. Same with Sheryl Sandberg on CNBC. But without a special outside investigator no one is going to touch believe that this problem is behind them. If the NFL, arguably the most powerful company hires an outside investigator to look into issues, can't Facebook (FB) do the same? Of course it can. They need an outsider looking at this and making decisions that Zuck can no longer be trusted to make, at least in the court of public opinion.
But there's something else that's at play that people are beginning to catch wind of. What Facebook did was basically allow bad guys to data mine and make judgments about people using artificial intelligence. You know what else uses artificial intelligence? How about self driving cars. Do you know how many tech companies are trying to sell as much into autonomous vehicles as possible? It's the biggest market out there and its rare to see some company not going for that market. But the road fatality we got yesterday, even if the film shows that perhaps the woman wasn't' able to be seen or did something that was too unexpected to be considered safe is cooling that industry on the spot. There're going to be a lot of missed quarters because of that accident.
I think there's also a subtle backlash going on against artificial intelligence when you listen to the actual gripes about Facebook. People don't want their information given out to companies who can then mine it and personalize ads to you. Yesterday Mark Zuckerberg said maybe the government should regulate his company like it does other media organizations. The simple way to regulate is to simply say that nothing from Facebook can be sold to anyone, no information. Maybe then Amazon (AMZN) should be similarly regulated and their artificial intelligence banned so you won't be prompted by the company to buy something that's' like what you just bought or others liked who bought what you did.
Now you think we could hide in the stocks of uniquely domestic companies. And you would be right except that this morning Darden (DRI) , the owner of Olive Garden, reported a weaker number than expected and changed up its menu in a way that suggested that perhaps business will be soft near-term. That took a major prop out of a group that's been doing better of late.
The slowdown stocks? The consumer packaged goods stocks? They are still reeling from the terrible numbers from General Mills (GIS) where inflation soared while sales barely held steady. It was a nasty quarter with repercussions for all in the industry because Mills called freight and commodity inflation something that all of these companies could have in common. The fact that Conagra (CAG) reported an excellent number with inflation well within control didn't stop the slide. I think Conagra's doing very well and is one to watch.
Then there were just random hits. Oil dropped big, taking the stocks with them. The government seemed more loose on its tariffs on steels and aluminums, and the steels were poleaxed.
The drugs? The best one in the group had been Abbvie (ABBV) , but it had a setback in an important test on small scale lung cancer. Two years ago Abbvie bought Stemcentrix for $5.8 billion for a new drug for this big field and it looks like the promise isn't as big as investors thought. The stock gave up gobs of points.
So, in the end, if you give us nothing to buy, we will sell. The controversies are coming home to roost. And the sellers are, at last, now coming right along with them.