Boxes checked galore! What can I say, we got movement on every single issue where I have needed to find an investable bottom, and that's exactly what we might have found here. The checklist is fulfilled and actual investments made. I can't go back and second-guess it when we have so many boxes checked. Look at this list.
First, I said we would not get a bottom until we have Ebola under control. We won't have a true end to the Ebola crisis until we have a vaccine that works, but we did take steps to control it and bolster confidence about not contracting a disease that so far has killed one person in a country of 317 million. What's changed? Several things. First, President Obama, who had been curiously disengaged over the issue, has started to focus on it with the gravity warranted. His fireside chat last night and his appointment of one of the most connected and tough administrators I know, Ron Klain, to a position of Ebola Czar is incredibly welcome. We have lost a great deal of confidence in Thomas Frieden, the head of the U.S. Centers for Disease Control and Prevention, who created a false sense of security and a degree of complacency that has been directly responsible for the spread of the virus beyond one stricken patient. Now Frieden will be free to spend more time on the flu, which I think he may be able to handle. Klain will be able to mobilize all forces, whether it be health care officials, doctors, the military, politicians and drug companies to get this thing under control. It's a real good move and it's most welcome. Plus, let's not forget we are now past the incubation period for those who came in casual contact with the man who died from Ebola in Dallas, and we haven't yet had anyone come down with the disease. I know, fingers crossed, but it has been 23 days since Thomas Duncan became contagious and that means people who met him might be able to breathe easier, and we can feel more confident that casual contact does not give you this scourge.
Second, nearly every single group was hit this week. They've all fallen -- from the high-yielders to safety stocks to utilities, and from real estate investment trusts to tech and oil and finance. That's what we've been waiting for, and this weeklong torture gave it to us.
Third, with the crushing of Netflix (NFLX), perhaps the most speculative stock in the market, we checked off the box of keeping speculation in check. Lots of money has been lost speculating here, and that's a good sign, not a bad one. We needed it reined in to get a bottom, and I believe the pasting of Netflix among so many others has done the trick.
Oil sure found its footing Thursday morning, when we saw the final capitulation of those who had been holding on for a bottom. I think there were many hedge funds that had borrowed huge amounts of money to buy oil stocks, oil futures and master limited partnerships. They were crushed Wednesday and then blown out of the water at the beginning of Thursday's session. With them gone, oil was able to rally. I say "Phew," because it was clear from the conference call of oil-services company Baker Hughes (BHI) that there would be major dislocations among some of the more indebted oil and gas companies in this country if oil hit $75. The scare seems over and I bet that if oil comes back down to those levels, there will be more buyers than sellers.
I cannot stress enough how important a bottom in oil is because oil has been seen as a bellwether of not just our economy but also the world's economies. Witness how interest rates dropped so precipitously every time oil was smacked down. Now rates have reversed from their lows and the pressure is off the system. Not only that, Schlumberger (SLB), a much better run company than Baker Hughes, said that demand for oil will rebound in 2015 and so will drilling. That matters because Schlumberger has been incredibly accurate over the years in calling tops and bottoms in the market.
I was hoping tech would stabilize, and I can't say we have an all-clear. Google (GOOGL) reported a mixed number -- some good, some bad -- and it got hit. Same with SanDisk (SNDK). But the much beaten-down Xilinx (XLNX), the semiconductor company, did better. We get a slew of tech earnings next week, but I think that the group has stabilized.
We need to see sanctions against Russia and with that the possibility of Europe getting stronger. We have no resolution here, but the two sides are talking. Perhaps more important, the Western European politicians are coming to a consensus that more has to be done to stimulate their battered economies. Italy and France have sided with the European Central Bank in trying to force Angela "Herbert Hoover in a Pant Suit" Merkel to open Germany's considerable coffers. It's a box that's not all checked, but I like the direction.
After some tepid earnings reports, we got beats and raises galore today in all sorts of different industries. Morgan Stanley (MS) reported the best numbers we have seen in finance. Dave Cote, the incredibly bankable CEO of Honeywell (HON), announced a remarkable set of numbers that sent the stock skyward. What an amazing quarter. General Electric (GE), which has had good orders but hasn't been able to get the revenue to fall to the profit line as much as I would like, managed to do so this quarter. It was an incredibly positive change for a company that had been growing sales but not blowing out profits. Schlumberger, countering the weak numbers from Baker Hughes, triumphed over the estimates and gave you a fantastic outlook. Textron (TXT), another diversified industrial, knocked the cover off the ball. Checked boxes all the way around.
We didn't get rid of the technical damage, but we did see the Volatility Index (VIX) retreat hard, which we wanted to help us spot a bottom. We didn't take out Wednesday's panic low, which matters tremendously and shows that there are levels that would bring in buyers again if we ever got back there. It felt like a whoosh capitulation, where all of the leveraged hedge funds were cashiered, particularly those that were burned by when AbbVie (ABBV) walked away from Shire (SHPG). That was unexpected, and it caused tremendous margin calls that finished when the Dow Jones Industrial Average shed 400 points at its low on Wednesday.
We don't have anything yet from China but there were multiple stories that the Peoples Republic might be about to announce that more money was being placed in banks to keep them lending. That would certainly go a long way to jump starting that slowing economy.
Finally, did anyone notice that ISIS has actually suffered its first defeat at the hands of the allies with the news yesterday that it has retreated from Kobane, the besieged Kurdish town that it was supposed to be overrun by these terrorists this week? Until this pullback, we were led to believe that ISIS was invincible. I am sure they will have more victories, but this is a real defeat and I think that the Pentagon could feel emboldened that this ragtag group is no longer going to roll over all of Iraq.
Now, of course, there will be reversals and earnings disappointments and more Ebola outbreaks. But I have to say that we have an investable bottom on our hands and, at last, it is safe to do some buying.
