What if the Federal Reserve is just plain on hold for the rest of the year and we can curtail the endless jabbering for a rate hike? What if oil's back? What if things are getting better in China? What if the Communist Party has relented on its crackdown of excessive spending and is now in favor of home building? What if the issues with Volkswagen can be contained and at the same time other auto companies can benefit from the company's mistakes?
All of these "what ifs?" would have been ridiculous to discuss even a week ago.
But suddenly, good news is busting out all over and we can't not talk about. I have been bearish ¿ but if the facts change, I have to change with them.
First let's start with the Fed. A few weeks ago, the Fed issued a statement saying that it was on track to hike unless the facts got in the way of the bullish economy story. Lo and behold, they did get in the way with that weak Labor Department non-farm payroll employment number.
It might have been a shocker to those who kept talking about the need for the Fed to raise and raise now. But it isn't to anyone who has listened to what the companies have to say. Our companies are being slaughtered by the strong freakin' dollar in part because everyone expects a rate hike.
When we saw this employment number, it was a verification of what everyone should have known ¿ including those endlessly beating the drum for a rate hike ¿ that the economy is weakening and weakening fast. That's not when you raise rates.
I think that had Janet Yellen raised rates at the last Fed meeting ahead of this weak employment number, there would have been a chorus of people griping that she would now have to cut! She would have looked like a clown. How ridiculous is that? She did the right thing, and that's why the market can and should rally.
Let's be careful, though. When I say she did the right thing, what I mean is that she did the right thing for Main Street. Autos and housing, the twin pillars of strength in this faltering economy, could have been pushed down by a hike. That could lead to a decline in earnings for these two strong sectors. I am not a cheerleader for higher prices. I am someone who knows that as Main Street goes, so will Wall Street.
This number made those who incessantly call for a rate hike look like cranks. One day, we will be ready for a hike. But right now, deflation ¿ wages are on the decline again along with pretty much every commodity ¿ is the issue, as Ben Bernanke addressed this morning on CNBC's Squawk Box. This poor employment number is a game changer and we all have to respect it, even those who are dogmatic in their insistence that there's no time like the present to move.
Second, let's talk about oil. The market on Friday experienced a remarkable reversal, going down on the weak employment number and then pivoting and rocketing the Dow 400 points higher.
Why? I think it had to do with oil turning. There's been a tremendous amount of negativity about oil. There's the Goldman Sachs call that it goes to the $30s from the $45 level where it has been. There's the incredible, endless pumping by the Saudis, far more than anyone thought possible. There's Russia putting out oil like mad to help its balance of payments post-Ukraine sanctions.
And then there's the Baker Hughes rig count that comes out on Fridays. When I first got in the business, we used to watch this number like hawks for any sign that the then-bear market in oil was coming to an end.
This was more than 30 years ago, but the indicator is back in vogue now. When it first dropped, oil soared from the low $40s to $62 and change this spring. But when it started going back up, oil plummeted to the high $30s, taking out the old low as oil became the worst performing commodity of the third quarter, off 25%.
Now, though, the decline is stark, with 26 rigs going off line ¿ a huge number ¿dropping the entire count to 614. That cut will directly impact the amount of oil we pump in this country. It's also a sign that the weak hands will be flushed out ¿ something that's gotten an added push by the ratings agencies, which are downgrading the weak credits, making them hard-pressed to get the cash flow needed to stay in business as currently configured.
Believe me, it is no accident that Concho Resources (CXO), a terrific company, raised a gigantic amount of capital last week to have war chest to drill or buy. You are up 10 points on the deal if you participated.
We may have a dramatic decline in the amount of oil we produce next year. That will send the price up. That plus the lack of a rate hike have given Petrobras (PBR), the strapped Brazilian oil company, a reprieve as the Brazilian real ¿ Brazil's horrendously beleaguered currency ¿ has, momentarily, stopped singing like a piano pushed off a tall building. Maybe the company will have some breathing room to reconfigure before it is too late.
I don't know if you have seen what's been happening with the stocks of Wynn Resorts (WYNN) and Las Vegas Sands (LVS), the two biggest Macau gaming companies. Their stocks have been soaring. That's because, apparently, the Chinese government has relented on its crackdown of gambling junkets to the casino province. This, plus, the sudden change in Chinese mortgage rules, could mean the Party feels like it's an impediment to growth with its puritan-like behavior and its stinginess when it comes to building and buying new homes. That's a welcome change. It could even impact copper, which is integral to new home sales. Forty percent of the world's copper goes to China, but China hasn't been taking as much as it used to.
The impact? It could help Glencore (GLNCY), the mining-and-trading company that has seen its stock price plummet and has widely been perceived as the next Lehman Brothers ¿ the next company that could blow up and take down the financial world. It's a gigantic copper company, and anything that causes copper to rally, as it is today, eliminates the pressure on Glencore and therefore the market as a whole.
Needless to say, if China starts doing better, that could ignite the entire bedraggled commodity sector. It could be good news for everyone from Caterpillar (CAT) to Cummins (CMI) to Alcoa (AA) and General Motors (GM), which is why those stocks are rallying. They never go up randomly, although they could also be helped by the astonishing stake that activist Nelson Peltz has taken in General Electric (GE), which is being seen as a signal that the industrials have gone too out of favor largely because of a decline in emerging market sales (including China). It doesn't hurt, by the way, that the Chinese stock market was closed for a holiday, but its proxy, the Hong Kong market, has been rallying because of all of this good news.
Finally there's Volkswagen (VLKAY). We now know that a couple of engineers who were concerned about high diesel emissions could be behind this scandal. Now, I think that VW will owe billions of dollars in reparations, but I also think that the possibility of the company just going away is diminished by this news. At the same time, you are beginning to see the stocks of the other automakers creep up. Some of that could be an anticipation of sales fleeing from Volkswagen to other auto companies. Some of it could be better figures coming out of China. Whatever.
Look, I am a realist. Things don't go from bearish to bullish overnight. And while a terrible September doesn't always lead to an exuberant October, it has happened. I have said now for the last week when everyone's bearish, it's time to rethink your viewpoint. That's just what I am doing.