We're not thinking clearly here. We are not recognizing that something big has happened and it may have importance for the next leg of the market. I think we are too blinded by doom to see it.
First, ladies and gentlemen, the fourth largest city in the United States has been taken offline and the state and local authorities for the most part have it under control. Unlike Katrina, we do not have withering stories about presidential incompetence. We did not have a fiasco of a visit to Texas by this president. If anything, it was workmanlike, as if we elected a "can-do" business president.
You forgot that side, didn't you? Or began to think it didn't exist?
Now, we have a world-class reclamation project which, because it occurred in a heavily Republican state, will get perhaps tens of billions of dollars to rebuild the moment the flood waters recede. That's going to be a massive shot in the arm for that region, replete with the need for building supplies -- think everything from wood and gypsum board -- Weyerhauser, Louisiana Pacific and USG Corporation (USG) -- to aggregates for roads -- Martin Marietta Materials (MLM) -- to roofing -- Owens Corning (OC) and Beacon Roofing (BECN) and of course Home Depot (HD) and Lowe's (LOW) . The storm is so big and the rebuild will be so tremendous, that while the offline hit to the U.S. economy will be noticeable, it will be ephemeral compared to what will happen when the reclamation begins.
I believe we are now more in a Hurricane Andrew situation than a Hurricane Katrina situation, where federal monies and rather well-off people, at least versus Katrina, move quickly to rebuild.
That would mean that Home Depot and Lowe's have a chance for a comeback here of some note. That's different from Katrina, when in many areas the rebuild, sadly, continues. Greater infrastructure will help this rebuild, and if it weren't for Amazon (AMZN) , I think Home Depot would be breaking out here. That's different than what I thought earlier this week, when I postulated the losses would be equal to Katrina. That will be true, but the difference is that the rebuild will be far more organized and done with alacrity, because it seems organized and relatively under control. That's amazing in itself.
Which brings me to the second point: our president is occupied and on message. We don't know if this is the work of the new chief of staff, General Kelley, but the vindictive, off-message president hasn't been seen in a couple of days, which allows the stock market to not be focused on abstractions. The fact that the president is going to speak on Tax Reform on Wednesday gives those of us who think it can help business some hope that it isn't dead as a doornail, sacrificed on an altar of rancor and an intractable debt ceiling argument.
Impact? There are stocks being bought these days -- notably health care stocks and some techs -- with the presumption that repatriation could occur. Watch Cisco (CSCO) on this; weak quarter, lots of money to repatriate. It doesn't come in.
There's an element of wishful thinking on my part here. A president who acts presidential is worth a couple of percent on the upside. A president who is peeved -- rightly or wrongly -- is a president that hurts his own cause, even if he thinks he's the sole judge of that.
How about the fact that a missile passed over Japan and we didn't go to war? There's something going on beneath this most recent trial that has nothing to do with the Chinese. Remember they are an ally with North Korea. The PRC has no interest in helping us. But I do doubt that the Chinese want to provoke another war with Japan. So, that actually has more of a feel of a last gasp -- at least to this market.
Impact? Hard to get over the existential feeling that we could all be faced with a North Korean-led annihilation. Nevertheless, we clearly did manage to put this in the rearview mirror in record time, and sealed the fate of billions of dollars bet the wrong way.
We've been spared these last few days the usual doomsayers who come on and drive out the retail investor in the name of trying to get their performance better. Maybe there is better vetting among the journalist-short-seller-bad-mouther complex, but we haven't seen people calling for crashes. I find that refreshing, given that the averages are masking a lot of disappointment anyway.
Impact? A thin market isn't being disturbed as much as you would think by those who need it lower.
We have not one, but two deals occurring now that could redefine the landscape of two different areas that are vital to the performance of this stock market: health care and aerospace defense. For the last few months, we have had a decline in the amount of stock being bought back and a dearth of takeovers.
Right now, we just got a huge one with Gilead (GILD) buying Kite (KITE) for almost $12 billion and the United Technologies (UTX) -- Rockwell Collins (COL) looks like a done deal for something that could be north of $25 billion. That's a lot of money suddenly injected into the stock market, and some key consolidation in two red-hot areas. Given that these deals are taking place in one of the least important weeks of the year, what awaits us come fall?
Impact? The shorts have had the run of the place for months. What happens if it turns out that the takeovers are just beginning? We know there are way too many independent drug and industrial companies. Could a rational reckoning begin, which has good consequences for those who own individual stocks and negative ones for those who short them?
I am beginning to think so.
Perhaps the great untold story of this period is the steady decline in the dollar. This is unmitigated good news for the stocks of companies that I think are coming down falsely, the multinationals. You are soon going to begin to raise numbers for companies with big overseas businesses. Don't believe me? The one that reported last, PVH Corp. (PVH) , saw a considerable boost from non-constant currency. We won't care why we raise. We just raise.
Impact? The dollar may be the reason why the stock market may not be as elevated as it seems.
I know there are tons of wags who say, Jim, how can you be so shocked that Apple (AAPL) (which is a holding in the Action Alerts PLUS charity portfolio) might be ready for Christmas with a new iPhone. The answer? Because the entire supply chain has been worried that there isn't enough time for the company to get the phone out properly. If there is, though, it is a huge boon for non-FANG tech, which is the tech that really matters.
Impact? When you consider the take-outs in biotech and the possibility that the stocks of the component players have yet to react to an iPhone-ready economy, you have the possibility of higher prices for the Nasdaq, which will be very visible.
Finally, we need to recognize that, barring a debt ceiling fight or more repeal and replace talk, a Washington back in session might actually bring good tidings if the president is on his game. Tall order, but impact?
Now, things could unravel fast if there is no deal on the debt ceiling and the president can't capitalize on his own momentum. He needs to come out and say that, because of our vast resources, our country was not shut down by an inability to import oil or natural gas -- that's what would have happened even five years ago, and we are in the process of the greatest rebuilding effort of all time, and when it is finished we will then address the wall with Mexico. No matter how important you think that may be, if you want lower stock prices you focus on the wall.
You want higher stock prices? You focus on the country. All of the country, as it attempts to help America's fourth-largest city get back online again.