Can we stock guys ever hijack the market back from the bond guys? Or even the currency guys? Or the commodity guys? Are we just too darned small and inconsequential?
This morning I watched how stocks in Europe popped in almost a moment's notice. Was it ING's (ING) surprisingly good quarter, a financial that delivered and also bit the bullet on its Greek bond holdings? Was it the excellent number from Adidas, including a second guide-up in a row despite Japanese sluggishness, a number that confirmed that the shoe bull market is global? Could it have been the astounding and outstanding report from Unilever (UN), which included a bold forecast that raw costs are peaking something that makes sense given the rapid decline in oil?
It was some sort of short-term Spanish bond auction. Went slightly better than expected. I don't know, by a basis point or two. Maybe three.
That's what mattered.
Wednesday Europe stopped going down when Portugal sold some bills successfully.
Portuguese and Spanish bond auctions versus the balance sheets of the greatest companies on earth. Mealy basis point moves versus earnings that are incredible and can support much higher prices?
It's a little nuts.
It's why, though, I keep emphasizing hypergrowth and high-safe dividends because they can escape the clutches of the bond and currency markets and even commodities at times provided that they don't have much actual raw goods exposure.
Think of it like this. You can get 6% on a Spanish 10-year. Let's say Spain gets its act together. What are you going to make with that bond? You going to hit it out of the park? But let's say Deckers (DECK) keeps growing at this pace. How do you think you will be doing 10 years from now? Sure, they can screw up. But you know what? We always used to assume two things around here: 1) Businesses will screw up and eventually stop growing, and 2) countries can't screw up and will always be money good.
Both assumptions are wrong. We have seen stocks grow and grow and grow. We have seen major countries we would all like to visit or live in default or go near default.
Or, take the dividend plays. Take Con Ed (ED) versus Spain. You make 5% to own Con Ed, you make 6% to own Spanish 10-year bonds. Which seems riskier to you, a company in a growth area that has given you more than a 100% return over the last decade and raises its dividend every year or a country that is a total shambles and we know can't make it without some sort of divine European intervention?. I wouldn't buy those bonds if they yielded twice what they yield now versus owning Con Ed.
So why are we so in the grips anyway? If stocks like Con Ed or Deckers are so, so superior to the stuff we are hostage to, why do we have to pay any attention to these auctions?
Couple of reasons.
First, globalization. Big money knows no borders and is constantly changing its mind. Deckers isn't even a plaything, it is a rounding error, some little piece of paper which is part of a bigger piece of paper which the playbook of these big investors says has to be sold because of national earnings risk, even as it has nothing to do with that characterization. Everything's caught in this wake.
Second, there isn't enough money in individual stocks and there aren't enough individual investors to keep stocks from rising or falling to this macro tune. The baskets whip around the actual stocks, not vice versa. That can't change until there are enough stock investors who simply don't let it happen. There aren't. Stock investors are a dwindling class. So the sector (ETF) and the index are much more important than the actual company's business to the futures of the stock.
Finally, only companies that can be taken over, can raise their dividends, or have hyper growth can do much about this dilemma. A higher dividend means that a stock can break out of a level simply because companies with solid dividends are going to trade with each other and if you can raise your dividend to where it yields 5% not 4% your stock is going higher. Higher growth means that your stock can have radical price-to-earnings multiple revisions. Stocks with high growth can't stay at low multiples or be contained by indices with low multiples because there are too many money managers out there who need to find one or two good high growth stocks to beat the averages.
But without good dividends, hypergrowth, or the ability to be taken over, you might as well just accept your fate: You are trading with the Spanish 10-year. And nothing in the near future is going to change that linkage. It's just too powerful and too accepted to be overthrown.