We can look at the stock and bond rout around the world right now and we can run for cover.
Or we can take a look at what's causing the rout and think whether there aren't winners and losers being made and broken right here, right now.
It's difficult to separate the emotions of the losses from the cold, hard precipitating facts. But it's what you must do to make big money.
What's causing the selling? Some say it's the rise in oil. Others, a decline in the dollar. Or a vicious back up in European interest rates. Or the possibility of the Fed raising rates shortly because of inflation or job growth.
There are a ton of variables.
But what's really changed that's caused all of this turmoil? I think that the answer is pretty darned simple: Europe's getting better. Not just Germany. Not just the Northern rim. I'm talking about Spain, Portugal, Italy, France and all of the other countries -- obscured by the craziness of Greece.
That's happening in part because the European central bankers created a situation where, like here before our own central bank uber-activism, you didn't want to own bonds because they paid you too little for buying them. Instead, you wanted to own anything save bonds, as almost all other assets represented greater value. They still do, even after yields have moved up radically, because they have only moved up radically on a percentage basis versus where they were.
The moves by the European Central Bank may have been unorthodox, desperate even, but they are working. The economy is humming. When an economy is strong, many things occur. The currency gets stronger, and that's happening right now to the euro vs. the dollar. More people get put to work. Sales increase. Profits grow. Lending resumes. Bad debts go down. Tons of things that are good for business.
Which brings me back to the original question about picking winners ¿ or more accurately, about buying stocks that should go higher because of this huge sea change.
So, let's take the stock of PPG (PPG), run by CEO Chuck Bunch, which is the biggest most lucrative coatings company in the world, with the highest-quality products for materials, for packaging, for boats, planes, homes, construction and cars, including all sorts of paints like Glidden and Pittsburgh.
PPG just reported what looked to be a pretty miserable quarter, with a 1% sales increase year over year. That's the principal reason why the stock, a tremendous performer, has been stuck, down 4% year over year.
Because it does about a third of its business in Europe, that's why. And Europe hasn't been that strong. Worse, PPG's in a dogfight against European paint companies and its prices are too high relative to theirs, because of the strong dollar. When it cashes in the euros on what it does sell, mainly paint to BMW and Mercedes and the like, there's less than you thought left over.
Now, consider that in the last two months the following things have occurred: the euro's gotten incredibly strong versus the dollar, the order books have gotten much fatter, car sales are way up, and PPG's products are now more competitive versus their European counterparts.
You haven't seen any of this in the company's reporting yet. Its last quarter had almost all of the negatives and none of the positives. In six weeks, a monumental swing has occurred. PPG could show a dramatic year-over-year growth in earnings because of what's causing the turmoil.
Dramatic and positive.
So what gets sold? What's become a loser? The stock of PPG. Why? Because it is in a basket of stocks called the S&P 500. I accept that judgment; it's called indexing. Nevertheless, there will come a time when this stock will be too hammered because of these good things, and you will have to buy it.
As it goes lower. Because it is going lower for the wrong reasons. Which is exactly the kind of misjudgment you must salivate over, and take advantage of, not be repulsed by.
PPG's why investing is hard. It's also why it's worth it, because when this currency-induced smoke clears, PPG will be a much more profitable company and its stock will draw money away from others that don't benefit from the great 2015 sea change that soon will be evident for all to see.