Is it for real? Is this the real end to the Greek nightmare that has shrouded our positive stories with gloom? Sure seems that way.
The strength, for once, seemed rooted in something very positive: the end of the disaster scenario. There were plenty of people who simply believed that if Greece broke with the euro there would be pure chaos. Those investors are now off the sidelines or covering their shorts, meaning buying back what they bet against, because you most likely aren't going to see drachmas any time soon.
I don't need to go into the nitty gritty of the unforgiving press conference the woman who ran the whole show, German Chancellor Angela Merkel, threw this morning at 3:00, but let's just say that the Greeks blew it. They went for broke and got a terrible deal because in the end they wanted to be in the euro more than the Germans wanted them in the euro. I think the Europeans agreed to a plan because they wanted to force the Greeks to vote yes, and while I bet it could be touch and go and some in the media might seize on some left-wing party propaganda that the deal won't be approved, I think that it most likely will be and the issue will be behind us. The deal seems to contain enough provisions that will make the Greeks heel to all of the Merkel demands pretty much simultaneously if they want to be able to open their banks, so, bizarrely, the deal might actually work.
So are we all clear? You know my thinking. When you own stocks you are in the woods. You are never out of the woods. Whether it is because of a New York Stock Exchange trading halt or the threat of a Fed tightening or a collapse in the Chinese market, you aren't going to get to the Emerald City even if you are king of the forest.
It's just a fact of life.
Plus, there are real issues with this rally. Everything's going up, and that's not realistic. That's just futures-driven. You have airlines and autos and retailers and drugs and health care and consumer products and biotech and international industrials and aerospace and housing and even the oils all going higher. Only the rails, utilities and master limited partnerships are sitting this one out.
That's the counter image of day one of a selloff where everything goes up, including stocks that shouldn't. Tomorrow will be a different story, especially because Johnson & Johnson (JNJ), Wells Fargo (WFC) and JPMorgan Chase (JPM) report. All three are incredibly controversial. JNJ has disappointed for several quarters now as it hasn't been able to maintain the growth rate analysts are looking for. My charitable trust owns it because of long-term undervaluation, but I have my concerns given the last few quarters and the sensitivity to the super-freakin' strong dollar. A huge percentage of JNJ's business is from overseas.
JPMorgan Chase and Wells Fargo are plays on growth of the country with some spice thrown in, investment banking for JPM and mortgage exposure/cross-selling for Wells.
But the real issue is interest rates and how much they can make off your deposits. Given that rates remain low, you have to bet that they disappoint on their net interest margins, the way this data point is characterized. However, given how close we are to raising rates, you can bet that there might be some gun-jumpers anxious to get in -- hence why my charitable trust, which you can follow along at ActionAlertsPlus.com, has a big position in Wells and I would like it even bigger.
So that's day two in a nutshell. But, what about the intermediate-term future? What allows it to get into a meadow of all-time highs on the S&P and the Dow? Here's your handy list of what's got to happen to get us into launch pad position, with a failure to launch likely if the vast majority of these aren't met.
First, we do need the Greek government to agree to the German plan. It's so punitive there's going to be a lot of noise, but I think they have to because the Greek population is tired of the banks not working and want euros spitting out of them, not drachmas. In the end, I think that Tsipras' biggest mistake was not having a credible backup plan. And he still doesn't, so I think approval occurs.
Second, China must continue to have a more buoyant market. It's clear that things got out of control there and we've been able to have a reflex rally because of stopgap measures put into place by a government that literally fears for its life and doesn't want a stock-market-led revolt. I know you read almost universally that these won't work. However, this is a Communist country that doesn't play by the rules, and when you ask the margin clerks to go easy, you freeze bad stocks and basically criminalize all sorts of selling, it does put a damper on a bear market. Orderly declines of high fliers make sense. I think that's what the Chinese government may have engineered.
Third, and more importantly, we need to see China turn around. We have gotten higher and higher Baltic Freight readings, so it is possible that the excellent gauge of Chinese growth is showing that China's lowered rates may actually be a sign of something big happening. Don't count it out.
Fourth, we need an Iran deal. You may hate them and think that any deal is a bad deal, but it could really help the world's gross domestic product, which is really the issue. It's bad for the oil stocks, but I think it's being built into the price in part because OPEC made a very bullish projection for demand next year as well as an assumption of some pretty hefty declines in our shale prospects. Again, I am not a fan of Iran, but it would help worldwide growth and that's important right now when growth is subpar. Just calling it as it is, as my writing partner Matt Horween made clear to me earlier today.
Fifth, we need the Fed to go easy on rate increases. Yes, we hear from Janet Yellen this week, and while we know we are among the strongest economies in the world, it isn't like we are booming. Do we have to have a rate hike? Probably yes. Does it have to be in September? No. Will it hurt stocks? Depends on where they are when it happens. If they are down like they were before this two-day rally, it maybe won't be that bad.
Sixth, we want the dollar to stop going higher. The euro was killed today, again a sign of the Germans winning out as they are the biggest beneficiary because they are a massive exporter of all things industrial. The dollar has to cool off in order not to get severe number cuts.
Seventh, we need to get through bank earnings with a positive feel about future net interest margins, because the financials are the biggest part of the S&P.
Eighth, we have to get a pulse in the tech market, the other huge S&P sector. Right now we have heard nothing but slowdown calls on everything from personal computer sales, which are down double digits, to tablets and lately to cellphones, courtesy Chinese weakness. The latter must turn around or there will be way too many disappointments in the group. The charts are signaling they won't. They also, however, reflect a bear market in China that could turn the other way.
Ninth, we want those takeover and activist forces back in action. They seemed to take a bit of a break because of the turmoil, although Cramer fave MarkWest (MWE), a huge pipeline company that dominates the Utica and Marcellus shale production, got a bid today from MPLX (MPLX), a spinoff of Marathon Petroleum (MPC). The more, the merrier.
Finally, No.10, we need oil to stay where it is or go a little higher. The sector is just too important to get crushed. But if it goes up too much, it hurts travel and airlines and the transports. So we need to get some equilibrium that helps the transports but stops the oils from coming down more. It's a fine line, but a necessary one.
If we get all of these, then we are going to be headed to all-time highs. If we get some of these, then 2015 is going to be one of those years where the tug of war between the bears and the bulls will remain a draw.