Now it is all about the prism, the prism we put our thoughts through. A positive prism produces positive results that might otherwise be viewed as negative. And that's how we can advance after making endless advances already.
It's also a good sign that the entire advance we have on our hands may not be as easily repealed as so many think will happen. It means the market, while always more dangerous than if it had done nothing, is based on a new way of viewing things, a way that can only be described as a belief that President-elect Donald Trump will fulfill his mission to get the economy moving in a sustained fashion.
You know I like to do my own research and rely on my own thought processes. But one of the things I have learned over time is that whether it be Warren Buffett or Dave Tepper or Bill Miller -- to name the best investor of our lifetime, a terrific hedge fund manager whom I worked for when he was at Goldman Sachs and a mutual fund manager who has had huge calls -- is it's OK to learn, listen and quote them.
So I have to consider the comments from Ray Dalio, a fantastic money manager who runs the $150 billion Bridgewater Associates, whom I will quote and then parse. First, he said, "Animal spirits will lift markets." Then he went on to say, "Trump is a deal maker who negotiates hard and doesn't mind getting banged around or banging others around. Similarly, the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics." He went on to say Trump will also be forceful on foreign policy, education and the environment.
This is Mad Money, so you are not going to get my views on the latter, but let's start with the phrase "animal spirits will lift this market." We know the people whom Trump has picked are going to push hard to get his agenda going, the agenda being lower corporate taxes, repatriation of overseas assets at a reduced tax rate and deregulation.
Remember, I always say that if he can get these through, you are going to see earnings estimates go higher, both the bottom and top lines. The bottom line is simple: If you can bring in more money and pay fewer taxes, that's going to produce higher-than-expected earnings.
Now, we are all used to companies cutting costs to beat the numbers. And we are used to seeing companies buy back stock to beat the numbers. Frankly, though, we are so used to seeing both that we don't care for them anymore. We have judged these things to be superficial and we hunger for accelerated sales from deregulation and the possibility of expansion of the overall economy, maybe as much as 4%. Consistent growth could produce a different, growth mindset that would feed on itself.
Which brings me to the animal spirits of the market. You may hear this term and be puzzled, so let me solve the puzzle. One of the greatest investors of all time, John Maynard Keynes, put this thought in our heads. Let me give you the full quote: "Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature, that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits -- a spontaneous urge to action rather than inaction and not as the outcome of a weighted average of quantitative benefits."
I think that's most eloquent, but let's understand how it is playing out. In the big picture, or the macro, the excitement stemming from Trump and the people he is putting in and the pro-growth troika are producing animal spirits that are getting us to act, or buy stocks when we otherwise would be too circumspect to do so.
Think of what would be the clinical outcome of a weighted average of quantitative benefits. The dollar, for example, is soaring, we are almost at parity to the euro. For this entire decade, we have disliked when the dollar was strong, especially versus the euro, because that allows their companies to win share from our companies and we make less money when the proceeds of our sales are repatriated. Now we don't care at all. It doesn't matter.
Second, the market has always thrived on lower interest rates and disliked higher rates. But we have had a remarkable lift in interest rates and it doesn't matter. Third, we always heard from one of the best market prognosticators ever, do not fight the Fed. With that last rate hike, we are fighting the Fed and it hasn't mattered. After this run, the market is way overextended and historically expensive.
It hasn't mattered. Those are clear-cut examples of what the animal spirits Trump has unleashed have overcome. It's as if, even as the market has had a remarkable run under President Obama, the move is viewed as happening despite Obama. This move is happening because of Trump. The policies of Obama are being viewed as redistributionist and therefore not for overall growth, just the growth of labor. The policies of Trump are being viewed as pure growth and pro-business. He doesn't just want to let business fend for itself. He wants to push it to create more wealth.
So how does it play out on a day-to-day basis? Let's just consider the earnings reports we got today. Restaurant chain Darden (DRI) , the parent of Olive Garden, reported an in-line earnings quarter this morning with lighter revenues than expected and disappointing same-store-sales numbers. Plus, while the numbers were positive per month, November was worse than October. That's a post-election month. On another day, this stock would have been downgraded and hammered. Instead it goes higher.
Auto dealer CarMax (KMX) reported a decent earnings-per-share number but then disappointed on the top line. A revenue miss normally would be catastrophic for this company. Instead, it is up three as the focus was on better same-store sales, which clocked in at 5.4%, a nice number. Carnival Cruise (CCL) gave you a strong quarterly report this morning but it gave a 2017 profit forecast of $3.30 to $3.60 per share when the Street was looking for $3.71. Egads, that's horrendous. Remember how often I have told you that forecasts are what matter? Guess what. The animal spirits in this market say don't worry about the weight of the empirical evidence, spontaneous action will be taken. And it was, with the stock up almost a buck.
It's not just the earnings, though. I have been saying endlessly that Nvidia (NVDA) , the chip maker, is like racehorse American Pharoah with the triple play of machine learning, automobile and gaming chips. Today, without anything new, Goldman Sachs (GS) makes it a conviction buy. Bingo, the animal spirit of the bull ramps it up for another three points.
Or how about this one: Walgreens (WBA) has been trying to sell some Rite Aid (RAD) stores so it can dodge the antitrust regulators who are concerned about too much concentration. Today some little outfit called Fred's (FRED) , a general merchandise store, is going to buy 865 Rite Aid stores for $950 million in cash. Hold it right there. Fred's was a $400 million company coming into today. On this announcement, which is about a purchase price that is twice its market cap, the stock's up an astounding 78%. (Walgreens is part of TheStreet's Action Alerts PLUS portfolio.)
Isn't anybody worried that these perhaps run-down Rite Aids will prove too much for Fred's? Isn't anyone concerned that this little company is taking down a $600 million loan? The answer: absolutely not. Why? The animal spirits.
Look, it would be one thing if this has never happened before. But Keynes wrote about these animal spirits overriding mathematical and evidentiary concerns back in the 1930s. Plus, it's not like they are a big joke. This is not the first time the market's at all-time highs because of animal spirits. Most of the new highs have been generated by these spirits.
Or to put it another way, you may think it is irrational, and yes indeed, it is most likely irrational because it's bowing over the mathematical and the logical. But when you go to sell a million shares of any of the Dow stocks, there's a buyer right here and that, more than anything else, is really all that matters.