Are we too fixated on China? Are we too worried about whether we get a trade deal?
A day after a flurry of tweets and a stay of tariff execution from our President to the PRC, we have to wonder whether there aren't enough good things happening that we can sustain an advance without China because we still don't know if there will be a deal and we certainly don't know when it will occur.
Why does this matter?
Simple: because if we can advance without China then who the heck knows where we can go with it.
Today we got solid evidence that there's enough good happening ex-China that even after nine straight up weeks it is worth it to stay in and enjoy what Warren Buffett called the "tailwind" of America in his annual Berkshire epistle that came out this weekend.
How do we measure strength away from China? I think we have to do it individually.
So let me give it a try by using a method I have profited from, tallying the ways to win now, with or without China.
Let's start with mergers and acquisitions. This morning we learned that Danaher (DHR) , a fabulous health sciences conglomerate, is purchasing GE's (GE) Biopharma unit for $21 billion. In one fell swoop I think GE has taken any concerns about its viability right off the table. Sure there are issues involving long term care exposure and the bedraggled power division, but $21 billion goes a long way to curing those woes.
Not only that but GE keeps the gigantic health care business that we think of as MRIs and other heavy equipment with their gigantic service streams. What a windfall, especially when compared to an initial public offering, something that would have been the way the old GE would have done it, the old GE being the complicated, difficult to grasp series of IPOs that take forever for GE to get its money out of when time is of the essence.
At the exact same time Danaher gets a fantastic life sciences business that will be substantially additive to earnings next year.
No wonder that the stocks of both GE and Danaher increased 8%. To me it is a verification that, ex-China, companies are worth more than they are selling for.
Second M&A? I know it is only $4 billion, as if $4 billion isn't any longer all that much, but this morning European drug giant Roche (RHHBY) paid a 120% premium for Spark Therapeutics (ONCE) , a profitless company with a lot of hope and some hype about curing some diseases many years from now. It would be one thing if this were one off. But Roche joins Eli Lilly (LLY) and GlaxoSmithKline (GSK) and Novartis (NVS) in making gigantic multi-billion dollar deals for biotechs that many thought might be worthless during the last downturn. These are not stupid acquirers.
Oh, and lest there not be enough merger activity, Barrick Gold (GOLD) , my favorite gold company, run by the brilliant Mark Bristow, who used to run Randgold before Barrick bought it, is now making a hostile $17.8 billion all stock deal for Newmont (NEM) . I have no idea if it goes through. I do, though, once again point out that companies may be more valuable than their stocks indicate and if you like gold the way I do, Bristow is putting together a one man uber-ETF with which to do it.
Which brings me to the second way to win: the financials, more, most important, the big investment banks which have been such dogs of late. There's a reason why the stock of Goldman Sachs (GS) rallied almost $4 today: you are getting a premier mergers and acquisitions company for almost below its tangible book value, and I will throw in a quality stock underwriter and wealth manager, too. I think the whole group may be too low if there truly is a revival of M&A of today's proportion because that's a hugely profitable business that doesn't need the Fed to raise rates to make more money.
Third way? How about with earnings? Look, I know that earnings haven't been all that strong this quarter. But I also know that we have had our share of upside surprises. Today we got two: Carters (CRI) , the child and baby apparel company and Terex (TEX) , the heavy equipment maker. They alone can't justify much of an upward move. But you can't sell a lot of children's sleepwear without department stores doing better. And you can't sell a lot of heavy equipment without construction doing better. In that sense, you've got some real good pin action going on.
The stock of Amazon (AMZN) wannabe Wayfair (W) took another leap today, too, after it rallied 30 dollars on last week's big revenue surprise, even though losses continue to mount. A market that overlooks losses and revels in revenue upside is a market that can be gamed and applauded by all growth money managers.
Fourth way? Tech doesn't really seem to want to quit. Now I know some of the positive action today came from a combination of China hope and Buffett praise. In other words, the stock of Apple (AAPL) rallied strongly because Warren Buffett told CNBC's Becky Quick he would buy more if it fell and anything with China, any agreement, has to make Apple a more viable upside surprise than currently estimated.
But I am speaking about a whole other group of techs. Stocks like that of Facebook (FB) , which got a very serious push by Citigroup today on possible expense control. Since the operative term about Facebook is out of control as in out of control ethics and out of control expenses, the market's happy without one of out of two. It's good to see some life out of FANG which has been a real detriment to the tech rally, a rally that has largely been centered on the cloud kings and the semis.
The really good news? The semis and the cloud kings were able to advance again, and both have solidified their status as market leaders.
Now I don't want to give the cyclical rally, the rally in the international industrials short shrift, but I have to discount that rally as based almost entirely on a China deal.
That said, oil's been rallying endlessly on a China deal and today it got gobsmacked by almost $2, a huge decline and one that until today would have been expected to bring down the whole edifice. It didn't happen and that's a welcome sign for all who fear that any selloff in oil will produce a miserable day.
How long can this rally last? This morning I listened to CNBC's Brian Sullivan interview a very smart guest who was fretting about how the market was moving up with cash being taken out of it every step of the way. To me that's a glass half empty. I am going glass half full: if this is how the market does without new money who the heck knows where it will go with fresh capital, the kind of capital that does tend to come in, admittedly, after a large move but money that, nonetheless, can prolong the rally even if we get a China deal and so-called smart money wants to sell the rally.
Or, to put it another way, that's a heck of a lot of ways to win without a China deal. Who knows where we will go with one?
(Danaher, Goldman Sachs, Amazon, Apple, and Facebook is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells DHR, GS, AMZN, AAPL or FB? Learn more now.)
