Why doesn't this market go down? Here are five reasons: European banks, oil, Brexit, rate hikes and Trump.
These were part of major retreats in the market.
Last year we had a rip-roaring, unsustainable bull market in Chinese stocks. People were opening four, five accounts and using margin to buy anything that moved. Of course, that had to end, and end in hideous fashion. Stocks got cut in half. Lots of companies couldn't get their stocks open. The market had a couple of 7% plummets. We thought the popping of the big Chinese bubble would lead to world catastrophe. I remember checking the markets every night at 9 p.m. to figure out how much my charitable trust would lose the next day.
Then one day the Chinese made a series of moves, removing the boss of stocks, bringing in someone new, banning short-selling and criminalizing the act of rumor-mongering stocks down. The West laughed. No government had ever been bigger than "the market." But these people were speaking about democratic government, not totalitarian governments.
The methods worked.
China started flat-lining at the 3000 level. You don't hear much talk about it anymore. The bottom marked a colossal buying opportunity.
Back at the end of January and the beginning of February, we had a decline in oil of epic proportions. People put pen to paper and calculated there could be $300 billion in high-yield paper that could simply cease to pay. There was another $500 billion - minimum -- in bank loans that would not be repaid. As oil plummeted to the low $20s, we saw that Wells Fargo (WFC) , Bank of America (BAC) and JPMorgan (JPM) had far more exposure to the oil companies and service companies than we thought. (Wells Fargo is part of TheStreet's Action Alerts PLUS portfolio.)
A huge number of people bailed out of both the oils and the banks.
But then, looking back, for no particular reason, oil began to rally to the point where loans that had been "criticized" were now solvent and the companies that were marginal and seemed they could tip were able to raise equity.
Next thing you know, oil had doubled, and while some firms did indeed cut or eliminated their dividends and many small ones were obliterated, the losses turned out to be minimal vs. what we thought would occur. If you sold rather than bought, you lost. Another colossal buying opportunity.
I was on a plane coming back from San Francisco -- an all-nighter -- with my daughter when the Brexit vote occurred. I was distraught when I landed and saw the futures so low.
My 25-year-old daughter asked me what the big deal was. I explained it all to her, to which, at the end, she said, who cares? It doesn't hurt us. I explained it again. She said it made even less sense to her given how small the United Kingdom is as a percentage of world commerce.
I went out hard with her view that morning, although I didn't identify it as her view as such. I said it was just too hard for most people to understand why it would be bad for us given how small the United Kingdom was to us vs. the rest of world trade.
Colossal buying opportunity.
How about when the European banks were supposed to go bust again? This time Deutsche Bank (DB) because of the Justice Department and the usual host of bad loans that they hadn't reconciled or owned up to.
Of course, the Justice Department has rules since the closing of Arthur Andersen that include not wiping big companies out with indictments.
So just take it off the table.
But the media wouldn't. The negativists wouldn't and it all turned out to be a non-event. DBank can now do a gigantic rights offering and hold out until the Trump administration's Justice Department comes in. Trump uses Deutsche Bank. What's he going to do: decide that they should be put out of business here?
Just one of those worries that was misplaced. Boy, was a lot of time and money wasted talking about it, though.
Then, of course, there is the dramatic one-night bear market over the election of Donald Trump. I remember thinking, OK, you fooled me with Brexit, you miserable pollsters, so I had done a couple of shows and many articles about a Trump victory so there was no going back about how good that could be.
Rate hikes? For several years we dreaded them. Unlimited downside. Now, because the market leaders are the banks, there could be some real downside to no hike. Plus, out of nowhere we stopped caring about the dollar except for the consumer packaged-goods stocks. Higher rates have given pension plan deficits a shot at easing. The savers are happy.
Yep, hikes? They are now requisite.
When you consider that litany of things that scared people and caused pundits with a degree of standing to say, "Get out now," you have to admit that you do feel pretty dumb if you sold.
So I think that right now when you get scared, the propensity is to say, "I gotta be careful not to lose too much stock as it is near year end and the selloffs in the last year were all colossal buying opportunities."
And that's why I think that when we should go down or give up the ghost, there is more fright about not buying than buying.
Just a change in how people think. A change in attitude.
A change in behavior that makes it much more of a liability to take action than to stand pat.
The new world.
At least for now.
