What was that thing with Italy again? Was it about trade? The euro? Milan v. Rome? The presidency? Interest rates? Help me here? Cause from what I can tell it has very little to do with the price-to-earnings ratio of Facebook (FB) or Amazon (AMZN) .
And so it goes, another day where panic was replaced with rationality and we forget why so many were driven out of the stocks of high quality companies that have absolutely nothing to do with Italy, which, for the record, is pretty much every company except a handful of public companies that sell Zegna and Brioni Ferarri, symbol (RACE) , which is just a few points from its all-time high.
Why is it that the market came back? Let's go over the reasons.
First, we are not in Italy. I know that sounds pretty obvious. But the fact is that plenty of people wrote yesterday and came on air with stories that sure made it sound like we are in Italy.
We are fortunate enough to have a place in Italy, we, meaning my family. We are not so arrogant or stiff-necked to believe ourselves to be anything that's representative. We are 100% anecdotal. But anyone who thinks that Italy is a functioning state with a real live banking and legal system may be confusing, say, the state of Maine with the city of Milan and Milan's the most American of the country.
Italy is crying out for better government. Many Italians are voting for what can be considered nationalist accords, but I think deregulatory principles is more like it. Italy, for example, wants multiple functioning competitive banks, pretty much like everybody else in the world, but they don't have it. Italians would like a mortgage market so that property can be bought and sold in something other than cash. Many in Italy want a smaller bureaucracy, and yes, because unemployment is so high, fewer immigrants to compete with the native population.
Most important, they want to be open for foreign business and not have to be afflicted by a strong euro which hurts their tourism opportunities.
It's the latter that the fracas is about, the onerous nature of the euro as a way for the Germans to be able to export into every part of the EU including Italy, to the detriment of the Italians.
But that's it. That's all there is to it and while we may want to fret and fret and fret about what happens to the European Union and the euro, I continually come back to the fact that our banking system is not their banking system. The idea that somehow PNC 's stock (PNC) or Wells Fargo's stock (WFC) should be hammered because they are part of a bank ETF that somehow may have some tangible, most likely positive, but thought to be negative Italian blowback, is just absurd.
Or to sum up the Italian section of this epistle, as much as I try to shoehorn Italian negativity in the American cornucopia, or Greek negativity, or Spanish negativity, or Cypriot negativity, I can't do it because our banking system is strong and unaffected and if you are rich and Italian you are going to send your money here, if you haven't already.
Second reason? Business here is determinant of much of what happens in our stocks. You know you hear now a lot of chatter about how you want to avoid single stock risk. This nostrum makes it sound like there's nothing more dangerous than owning a piece of a great American company. But the fact is the market is made up of stocks that have varying degrees of risk. It just so happens with the American economy as strong as it is, what you don't want to do is take on ETF risk you want to invest in the best American companies that have the most to do with America or are in secular growth modes.
Because we have such a strong economy we are getting some incredible returns from American companies that do most of their business in America and selling these companies because of Italian woes is the same as selling them because of the credit rating of New Jersey or Illinois.
They are too problematic states much like Italy, but they aren't worth cashiering the stocks of great American companies for, even great American companies from those two states.
Third reason not to sell? Our nation's natural resources versus Italy's or anyone else's for that matter. I spend a lot of time talking to industrial companies, including companies like Union Pacific (UNP) , which has what I think will be a fantastic investor day tomorrow, or the oil or construction or utilities, all sorts of companies. Here's the word I keep hearing: boom, as in our country is booming because of its incredible natural resources base.
Now it's not spread out as much as we would like. Much of the boom is happening in Texas and Louisiana, but these two states are getting literally hundreds of billions of dollars in investments because of our cheap energy, notably natural gas. Whether it be plastic plants, or liquefied natural gas terminals or containerboard and chemical companies, or ethylene transfer facilities, this stuff requires a gigantic number of people to become a reality. It's the kind of thing that explains why we have such robust employment. At the same time places in the country like Indiana, which used to have the highest unemployment and therefore attracted a great deal of basic industry, now have the lowest unemployment. The good people from Thor (THO) , the recreational vehicle company, would tell you they are struggling to find enough workers to assemble their products. I mention these admittedly anecdotal examples because I want you to remember that we are not in Rome or Naples or Florence, unless you are talking about Rome, Georgia, Naples, Florida, or Florence South Carolina.
Next? How about the rule of law? I don't know how many of you have had to do business overseas but let's just say you have to hire people to hire people who hire people who don't know what they are doing anyway. The thicket of laws or rules or whatevers is so dense that you feel like it is a triple canopy jungle. Our country? Okay, we've always had regulations and the Obama administration excelled in making them and putting them on business. This administration is doing everything it can to peel back the regulations to make it easier for business to be done. For the most part it has not succeeded because of the entrenchment of the bureaucracy. But because of an insistence on tepid enforcement from above coupled with a "look the other way" attitude and a lack of jobs filled, we've become a much easier place to hire and grow. You may hate that. You may want much tougher enforcement of all laws. But if you are operating a business, trust me, that's not your ethos.
Finally, what made me so upset about yesterday's market is that so many so-called geniuses can conflate the problems of their banking system with the problems of ours.
There is a similarity: they both involve capital. But that's where the similarity ends because their banks are radically undercapitalized and our banks are insanely overcapitalized. Their governments never demanded that capital be raised. Our governments insisted that capital be raised. Their regulators are lax and members of the club. Our regulators until President Trump, wouldn't even know what a club is unless it' s something to beat over the head of Jamie Dimon or Lloyd Blankfein.
So, let's understand something. I used to say at the end of one of these diatribes, now you have to remember what happens at the end of these crises. Someone on twitter yesterday said I looked tired. Nah, I was just exasperated. Because no one, not one soul who writes or opines on air about these things will change.
They will freak you out of your socks every time, just like Steven King has managed to do for so many years. It's one giant Overlook Hotel out there. But at least I feel good getting it off my chest. There. Now go sell if you want. At least what you sell will be higher.