Raise your hands if you think this business is difficult. You're right. You're right because too often the facts just don't fit with the story, and therefore there's a level of confusion that's just astonishing and it happens on a day-to-day basis.
Let's start with politics, which you know I am usually loath to talk about. On Friday at midday, we learned that FBI Chief Jim Comey had decided to examine a whole new bunch of emails from Hillary Clinton that were found as part of a separate investigation into disgraced former Congressman Anthony Weiner.
Immediately the entire market took a hit. And then almost immediately a great deal of the market rebounded. What's going on? Why is that? What's that all about?
OK, first, the market went down because the market doesn't like uncertainty. For weeks, like it or not, the market's gotten accustomed to the idea of a Hillary Clinton presidency. Again, I am urging you not to think this is a political statement by me. It is simply a reflection of what the polls say and how the stock market discounts that information.
So then why did the stock market come back? I've polled many a trader and investor and have come back with the following answer: Anything that makes it less likely that there will be a landslide means there is more likely to be divided government. The market "likes" it when an interventionist Democrat can't run the table. For example, the best-performing stocks in the afternoon were the bank stocks.
If Clinton wins in a landslide, then the market perceives that power switches from Republican to Democratic in the Senate. That means the elevation of Elizabeth Warren and Bernie Sanders, two individuals who are regarded as very negative for the valuations of banks. So, as convoluted as it seems, a potential indictment of Clinton -- the extension of Comey's comments -- means a less likely chance of a big sweep by Clinton and the Democrats, which makes it more likely that the Republicans control Congress, which means the so-called extremists have less power, which means the financials can go higher.
I know, it's hard to make this up.
But it's gospel.
OK, more confusion. The Commerce Department reported a big jump in consumer purchasing for September, 0.5%, when economists were looking for 0.4%. Sounds terrific, right? But try making money from that. Try to pin something down from it. I can count on one hand the retailers that had a good September: Apple (AAPL) and Amazon (AMZN) . If you tried to invest in any retailer on these kinds of numbers, you got scalded. They don't make sense. (Amazon is part of TheStreet's Growth Seeker portfolio.)
The answer? These numbers rarely produce anything that we can make money on, but they are regarded as really important. I know I used to be fooled by them again and again and they always led me astray. Just today, for example, we got important downgrades of Home Depot (HD) and Lowe's (LOW) because of a survey by a very good analyst showing there's been a slowdown in the amount of spending people are doing on their homes. We know there has been a slowdown in spending on apparel from multiple reports from apparel makers. We know mall traffic is down and department store same-store sales are anemic. We have had disappointment after disappointment when it comes to restaurant sales. Both new and used auto sales have hit a wall. But where we are getting a big bump in consumer spending. My verdict? Worthless number.
Or how about this conundrum: TheStreet recently surveyed the number of decisions the government has made about approving or denying mergers and acquisitions and has found it to be perhaps one of the most voracious antitrust moments in history. That's right, more decisions have been blocked by the regulatory authorities at this time than TheStreet could find in ages.
Yet it is also a period that has an unrivaled number of deals occurring. Just today we have a deal where General Electric (GE) and Baker Hughes (BHI) are combining their oil and gas divisions into a single entity of which GE will own 62.5%, a huge $30 billion deal that will create a new oil and gas service colossus that can rival Schlumberger (SLB) . It is a stunning deal that includes a $7.4 billion payment from GE to Baker Hughes that will fund a $17.50-per-share special dividend for shareholders.
These come on the heels of Qualcomm (QCOM) buying NXP Semiconductor (NXPI) for $39 billion and AT&T (T) buying Time Warner (TWX) for $85 billion. (Qualcomm and AT&T are part of TheStreet's Dividend Stock Advisor portfolio.)
Mind you, these are all in just one week's time.
This is an insane amount of deal activity, but it is doubly insane given how the government has been so hostile to deals being made.
Have the CEOs of these companies just lost their minds? Aren't they wasting everyone's time?
No. These deals are motivated by cheap money. As long as rates remain this low, companies would rather borrow money to buy other companies and then start the process of rationalizing or firing people to bring costs down while looking for new markets that they aren't yet in that the acquired company might have expanded to.
Baker Hughes fills in key holes of GE's oil service business. Later this evening, I will be talking to Mike Polk, CEO of Newell Brands (NWL) , whose company purchased Jarden. That's a perfect example of an acquirer that can use its heft to expand into markets while closing down factories or selling extraneous divisions that just don't make sense in the combined entity. (Apple, General Electric, NXP Semiconductor, Schlumberger and Newell Brands are part of TheStreet's Action Alerts PLUS portfolio.)
Finally, there is the conundrum of oil. Not that long ago, when oil was threatening to go through $40, we heard from Saudi Arabia that there would be a deal among OPEC nations to freeze production and it would be arrived at by the November meeting. Even though there were no details whatsoever, oil shot up right through $50. It made no sense at all. Why would Iraq, which has been itching to add a million barrels a day to production, agree to a freeze? Why would Iran, which wants to add 2 million barrels a day -- and has the capacity to do so if it got the technology -- cut back production? Why would these nations agree to such a pledge?
We had no information on it whatsoever. We had to take the words of the Saudis, even as I have been saying again and again that it is in the Saudis' interests to try to talk up oil just to make some money short term because it has budget shortfalls and a hot war with Yemen.
Traders were pressing their short bets to the max at the moment when the Saudis made their statement betting that nothing would be said of any import. It turns out that something was said of import, it just wasn't based on fact. No matter, the traders bit, they covered their shorts and oil went much higher.
I don't think oil's going to go all the way back to $40 because there has been a 6% pickup in the use of oil in China year over year. We've also begun to see a big decline in production of oil from deepwater drilling and it's not being replaced with new drilling because it's just too expensive.
But the fact is if you were confused about the rise in oil from $40 to $50 on the Saudi declaration, you were right to be confused. It was based on nothing.
So, understand that you are not alone in trying to fathom what goes on in this market. The noise is loud. The confusion palpable. That's why I continue to recommend that you take a longer-term view, using the day-to-day craziness to find the shares in good companies at discounts that may prove to be short-lived vs. the earnings or the value of the sum of the parts of the enterprise.