It's a goose and not a particularly golden one at that. But if it gets slayed then don't look for any other to help. I'm talking about the housing goose and frankly, on days like today, it's one of the few sectors that is working.
First, understand, we are back in international purgatory. That's what happens when the Chinese stock market is down big, the emerging markets -- think Brazil and Mexico -- are weak and, yes, the dollar is super freakin' strong and commodities are weak. When you have this combination, it is almost impossible for the market to climb. There are just too many companies that do poorly in that scenario.
Think about it. First, there is China. Now I read a lot about how the Chinese market ripped higher for the last year and how it didn't have any impact on our market. So why should its plummeting play any role in the direction of our stocks now? That's just a stupid question.
Sure, the stocks themselves aren't that important. A lot of the ones that are stressed out, though, are. They are financials. And they seem very unhealthy, not that we could tell because it's China, as in forget it Jake, it's China. We have no idea how these banks are really doing.
Here's what we did know, though. We knew that as long as the stock market went higher, the Chinese government had a plan, a plan to make the consumer wealthier through greater stock wealth. Hey don't sniff. It worked here. By moving rates down our Federal Reserve virtually forced you to buy stocks to get some yield. That drove up stocks which created greater wealth which allowed a lot of good things to occur when it comes to job formation, consumer spending and ultimately, housing. More on that in a moment.
These kinds of moves aren't lost on the Chinese Communists. They liked the Bernanke inflate stocks plan and they put it to work. Unfortunately, they put it to work in a bunch of junk companies, not in companies that were bond market equivalents. Then they didn't rein in the speculators and allowed an obscene amount of margin to be used to keep buying. It's led the ongoing disaster that is a market that's unstable and propped up where the best hope is the air is let out slowly, not like the 6% decline they had last night.
Now, regardless of the lack of a reaction here to the upside over there, we are going to react negatively to a crash because it exposes the Chinese Communist Party as less powerful and less perfect than we thought. They are, alas, not invincible and we are beginning to think that perhaps they don't even know what the heck they are doing.
Think of some of the silly moves they are making. They have basically criminalized shortselling. They have created a Bureau of Stock buying that allows them to prop up stocks. And then they close trading in stocks all of the time. This stuff, frankly, is insane but nobody likes to say it out loud because they are the Chinese and they are supposed to be better, smarter and more powerful than we are. They were supposed to have passed us, remember?
Then they decide to devalue their currency in one fell swoop out of nowhere. Put aside that their currency had appreciated versus others, the sudden and precipitous devaluation, six times bigger than what they typically have done in the last decade, was shocking. Yet, again, all I have read is to pay no attention to the men behind the iron curtain. They are fine.
Don't believe it. They aren't fine.
I think the Party's not as worried about growth as it is worried about keeping the peace and not having rebellion because of subpar living conditions, unforgivably dirty air and very low wages.
Now, I don't necessarily agree with the endless tie-up between our technology stocks and their equity markets.
Investors flee the semiconductor stocks like Skyworks (SWKS) (a holding of TheStreet's Growth Seeker portfolio), which we are talking to tonight, every time the Shanghai index gets hammered. But I do know that the marginal growth in Apple's (AAPL) iPhones is from China (Apple is part of Cramer's charitable trust, Action Alerts Plus). And you know that those caught up in the stock market right now would be less likely to shell out for an expensive phone then when stocks are going higher. They aren't as expensive as cars, where sales are way down, but if we are going to slaughter Yum! Brands (YUM) over fears that its Kentucky Fried Chicken division might be doing poorly in China, we are going to sow a lot of doubt about iPhones and their component makers like Skyworks. Or Avago (AVGO). Or Qorvo (QRVO). Or Integrated Device Technology (IDTI). Or NXP Semiconductors (NXPI).
We also know that China's using fewer commodities which is now beginning to be a disaster for another paper tiger country, Brazil, which turns out to be as levered to Chinese infrastructure as Apple seems to be levered to the Chinese Consumer. I say seems because I don't know about the actual linkage with Apple but the raw materials that Brazil pumps out are doing terribly.
I don't need to tell you how horrendous the strong dollar is for any company doing big business overseas but I will do it anyway -- queue the Superfreaking music. I mean I saw a downgrade of Disney (DIS) today because it has international exposure, that's how seriously this currency's being taken.
So, we get all of these repercussions from the get go when we come in today. Now when I got up, oil was off about $0.40 back to the $41 dollar range and that could have been another world of hurt that somehow got stemmed for what I can only say are unknown reasons. But nobody trusts oil to do anything these days. The stocks of the consumers of oil -- think airlines -- didn't go up and the oil stocks didn't go down. That's about all that could be said about crude.
Which leaves us with what's working: housing.
Housing's an amazing tonic for an economy. We are on pace to build 1.2 million homes this year, which is what we were putting up before the Great Recession. It takes a lot of blue-collar workers to build houses. It takes a lot of white-collar workers to process the buying and selling of homes. It takes a lot of retailers to build, fix and furnish homes. And if you are a retailer involved in any aspect of that process AND, if, you are not in competition with Amazon (AMZN), you are thriving. Who does that define? How about Home Depot (HD) which led the market today with a gigantic increase. Or TJX Cos. (TJX) with a HomeGoods division that is positively on fire.
But if you can be Amazon'd, then you aren't even participating, or, worse, like Walmart (WMT) you are getting hammered.
Now, remember, we have had plenty of days of late where China didn't act up, the dollar didn't go up and oil stabilized; and, to make things even better, interest rates went down, making stocks with good dividends more valuable. We could have one of those days again tomorrow. The important thing you need to understand is that housing has become the goose, and on days like today it is golden enough to make the day seem palatable for many investors. But if China gets hammered again and the dollar goes higher still and we get some Fed head saying we need to tighten the set-up, it will be real bad and I need you to be ready. After a couple of nice green days, be ready for some real turmoil. Look, housing can do wonders for an economy. But don't ask it to do wonders for the stock market. There's way too much that's hostage to the other, far more pernicious forces, at least right now, to let the goose carry the weight let alone be slaughtered by an over aggressive Fed that might actually think that everything's hunky-dory enough to begin the parade of higher rates that so many pundits think we are ready and prepped for.