If you do business overseas, a lot of business overseas, it looks like that is the difference maker. People keep asking me how, given all of the downbeat activity in this country, it possible that so many of our companies are doing well, I keep coming back to "how much Europe and how much China do they have?"
I think Washington truly did hurt the U.S. economy, but the U.S. economy has become all about housing and autos. While I think that the latter remains strong, the housing market has gotten much weaker. That's a large purpose that needs confidence and if there is waning confidence, as we all know from the confidence polls, then there will be fewer homes purchased and fewer new homes built. There will be less money spent on a home, which is why all of those groups, including Home Depot (HD) and Lowe's (LOW), fell despite the rally after the deal.
Now, like anything in this market, things have gotten very relative. If the whole market has been pulled up except the housing stocks, then I think it is fair to say that they can't fall much. But still, when the averages are this high you are going to be left behind if you aren't in the stocks of companies that are leveraged to the world's economies.
Case in point: General Electric (GE). GE has spent years trying to become independent of the United States. The timing was hideous because the expansion was heavy into Europe at a time of a big decline and into China when China was pausing. But if you go through the numbers last week you realize that GE was saved by Europe and Asia. That's one of the reasons why I think GE is just beginning to go higher and while there were plenty of doubters, particularly those focused on the revenues, it was all about the margin expansion that GE is now going to have as things get better. They've taken out a huge amount of costs without cutting back in their reach.
I am betting when we hear Ford (F) talk this week it will be similar. Ford didn't need to distance itself from the U.S. because car sales somehow came to be more secular than cyclical because of the age of the auto fleet in this country. Given that gasoline's never come down -- notice that? -- despite all the oil we have found, the payback for a car with heavy incentives is pretty decent. Plus, as more people are hired, more need cars. But Europe is what crushed Ford, not the U.S., and if you notice, Ford still isn't back to where it was almost three years ago, again because of Europe.
It's all about leverage right now. Who has leverage to the very markets that hurt companies so badly? Who is not going to have the swing from red to black pretty much in the way General Electric did?
That's why I am not as concerned about confidence data. I am not talking about buying the shares of Horton (DHI) or Pulte (PHM).
But one more word on those. When all stocks have run this high, even these stocks can be pulled up by the entire tide. In other words, they are not good shorts. They just aren't great longs.
