How dangerous, or enticing, is the stock market? Are we about to take an epic fall or are we about to have a run for the roses?
Despite the placid mood of the market, we are hearing bizarrely contradictory calls from all sides and the standoff needs exploring so you know the distances between the two extremes.
I want to start with a dinner I had last night at my tavern, Bar San Miguel in Brooklyn, with 40 home-gamer members of the Action Alerts PLUS club, the people who subscribe to the bulletins I put out about my charitable trust.
It was incredibly eye-opening because while many shared my level of optimism about the individual companies I have ranked as Ones, meaning shares of companies I would buy now, several others were incredibly worried if not downright bearish.
One individual wanted to know what would happen to my trust when the Federal Reserve took away all the liquidity, something that some might think is going to happen after reading the hawkish minutes the Fed released today from last month's meeting.
Another wanted to know if it's time to go headlong into precious metals. His menu? Gold coins, gold stocks or bars of gold. When I said I believe a portion of people's assets should be in gold, he pressed me and said he was speaking about a lot more than just a portion.
Finally, there was a discussion among several of us over a mezcal about what happens if there's no tax reform. I said it will happen eventually, to which another said, "Not when Trump's impeached. You know he's going to be impeached." He then proceeded to present me with a litany of woes that I finally interrupted with, "I have to talk you off the ledge." He tacitly acknowledged that I did.
Then today on Halftime with my friend Scott Wapner, I was shocked to hear Professor Robert Shiller, a man I regard as bearish about everything, say he thinks the market could go up 50%. Fifty percent? From a man who hangs out in the bear's den of pretty much every asset class?
Scotty pressed him and Shiller said he didn't necessarily mean that we were going straight up, that it might take some time. But he reiterated that he thought that directionally it was likely we went higher.
I then, in disbelief -- because you gotta understand this Nobel laureate has, at times, made me want to hide under the covers -- I said I just wanted to make sure I heard right. I wanted to be sure he meant that he thought the market was not overvalued, that there was no bubble and that we weren't about to take a real header.
He reiterated that if there is a bubble, it is in bonds and that stocks are actually reasonably priced. He proceeded to say this was nothing like 1999, for example, when stocks were reflecting a ridiculous amount of irrational exuberance, which happened to be the title of his book, which came out in March 2000, at the absolute top of the Nasdaq's historic run. If anything, he said, if Trump gets his reforms through, we are going to think the market is pretty undervalued.
So there you have it, I have people who came to chat with me, home-gamers whom I thought, by their self-selective status, would be very bullish with portfolios brimming with stocks, and instead I hear about Trump's pending impeachment and the need to go all gold.
On the other hand, I have a professor known for his bearish predisposition talking about how we could be on the cusp of a gigantic move higher.
How do we pull this apart and make sense of it? How can we game the coming crash and rocket-launch higher, two diametrically opposed world views?
First, let me tell you what my initial takeaway was. When one of the fellows mentioned the pending Trump impeachment, a few minutes went by before someone ventured that perhaps he wouldn't be impeached. Most just nodded their heads.
Yep, it didn't seem all that revelatory. But you know what did seem almost fanciful? The idea that Trump can deliver any tax reform, any lower rates for corporations or cut-rate repatriation tax bill.
I found myself thinking, wait a second, has the discourse gotten so bearish among some investors about our president that the choices are will he get nothing done or will he be impeached?
I started thinking, what happens if he rides this moment out, comes back from overseas, bears down, cooperates with the special prosecutor on Russia, is vindicated and actually gets something done? I don't even think that's in the stock market anymore. We've become so downbeat that we forget the guy was a dealmaker when he built his real estate empire, and perhaps getting a deal done is within the realm of possibilities.
Second, lost in the negativity of the on-the-ledge home-gamers is the ability of individual managers to control the destinies of some of their companies. Whenever you get lost in the forest of market valuations, remember it's made up of trees and a lot of those trees are stronger than we think and aren't about to be blown over by whatever ill wind sweeps through the forest.
Let me give you some examples. This morning Lowe's (LOW) , the home improvement chain, reported and it gave you some numbers that were disappointing versus what the analysts were looking for. I know some would conclude, oops, there goes Amazon (AMZN) crashing a whole new component of retail, the do-it-yourself home improvement stores.
How quickly we forget, though, that it was only last week that we got a report from Home Depot (HD) that vastly exceeded expectations and not only gave no sign that Amazon is impacting their business but, if anything, their business is accelerating as more and more people see the value in remodeling their homes and more and more contractors swing by for the latest in all things needed to make a home even more valuable.
We can see this execution difference across so many enterprises. Take Take-Two Interactive (TTWO) , which we have on Mad Money tonight. Here's a company that two days ago traded at $61. Today it's at $77. How did it span that gap so quickly? Because the market was just plain wrong about how to value this company's stock. Until this quarter, some skeptical investors just figured Take-Two was a creature of whatever hit game might be coming up. When they heard a key new game, Red Dead Redemption 2, would be a couple of quarters late, they sent the stock down seven points in after-hours trading.
But the very next day when investors saw how much Take-Two made from its existing games and how well it is doing on the most recent iteration of Grand Theft Auto and NBA 2K as well as its WWE system, the stock flew 16 points in the other direction over 24 hours.
My point? While we must not forget that we may think of stocks as an asset class, slated to be rocked by Washington or the Fed or dramatic overvaluation, every day there are stocks like Take-Two that prove us dead wrong.
I think it's most likely that both extremes are wrong. I am not looking for a 50% move from right at these levels, and under closer scrutiny I don't believe Professor Shiller is either. But I do want to talk skittish investors off ledges because I just don't think the risk is so great that jumping off a building will be all that rewarding.