Let's stop wondering and start figuring things out. Let's stop marveling that the market keeps going higher and instead put pen to paper and write it all down and make sense of it because this rally is out of nowhere yet, remarkable and yet, I would argue, understandable and while some of it is based on leap of faith a lot of it is based on leap of taste, meaning good tasting stories that money managers are getting behind.
I think sometimes the best way to parse the temperament is to go over the most obviously "wrong" moves and address why they might not be wrong at all.
Take Amazon (AMZN) . When you pick up the front page of the Journal you read that the brother of the paramour of Jeff Bezos is thought to have sold out Bezos for $200,000 in lewd pictures.
When people read about this story I think they say, "come on how can this guy be running this company and also contenting with this kind of craziness. There's no way this stock should be going higher."
I, on the other hand, think that things are a little more rational than that. I think there is a flood of IPOs coming, Lyft, Uber, AirBNB and what do they have in common?
The humongous engine that is Amazon Web Services, the 47% grower that is more profitable than any of the companies it powers. Now I know Bezos runs Amazon, but Andy Jassy runs AWS and it's going to be a bigger driver going forward than Amazon retail, which, while not tapped out could be peaking for now.
As people realize the power of this machine underneath, the one that is ostensibly driving Amazon prime but is really becoming one of two cloud businesses of true scale along with Microsoft (MSFT) , they get why this stock can go up and become the real leader in this market right now. Leap of faith? No leap of taste.
How about Nvidia (NVDA) ? We just got back in it for Action Alerts PLUS. Why? Do we hope that video games are coming back? How about crypto-currencies? Those are the two things that felled this stock.
Are people getting ahead of themselves?
No, I don't think so. Jen-Hsun Huang's back. The Nvidia founder bought down Mellanox to double down on the data center. He's got the best artificial intelligence chips. He's going after all sorts of business we thought belonged to Intel (INTC) . And he's going to have the right graphics for the next generation gaming that starts in 2020. Clear path to higher prices.
Now there could be some hype or hope going on with the commodity semis. Micron (MU) reports tomorrow and firm after firm has come out and told you there could be a disappointment because Dram prices, the basic building block commodity, continue to plummet. But the buyers seem undeterred. That's hope for certain especially as I can't see any demand generators there. It could be a problem tomorrow night for certain. And there's the hype of the Apple (AAPL) video service when that's unveiled March 25th. What if it is a letdown? How much of this recent Apple run is because of the possibility of a bigger revenue stream service from video? Or will it be free? Will it be a dud? Will they do anything with the information about how the watch saves lives, or is it too anecdotal to charge a monthly fee for? Like Micron I wish I could find some real boots on the ground reasoning for the buying. But I can't. Call these vulnerable until we hear that China's back on line without a trade war or with sales growth from lower phone prices.
The banks are levitating even though the yield curve doesn't make them a lot of money and the economy's slowing down. What's that about? Chimerical? I don't think so. I believe that the big banks have all been held back by the possibility of a catastrophe at Deutsche Bank (DB) . Sometimes this group is only as strong as its weakest link and this group, especially JP Morgan (JPM) , Citigroup (C) , Bank of America (BAC) and Goldman Sachs (GS) trade with their weakest sister. There's always vast conspiracies behind bank weakness because they are so opaque. However, if we get a merger between Commerzbank (CRZBY) and Deutsche Bank that gets rid of the pain point that's good for all the banks. I also think that the group's been getting no credit for all of the things the individual banks are doing to boost earnings away from core banking. How can you not like that Marcus, Goldman's retail bank, is about to move the needle or the financial planning business that Morgan Stanley (MS) just bought, Solium Capital, is going to allow the firm to tap into many of the new millionaires this IPO market is about to create.
Oh, and there's the IPOs themselves. When have we seen some upside from that line item for the banks. That's another prop to the rally.
Healthcare, especially managed care, has been a dog of late but it has suddenly come alive. Is that a leap of faith? I don't think so, not when I read the lead story in the New York Times about how "Democrats Split over Health Care at a Key Moment" The article reads as if there is an insurgency supporting single payer which would be disastrous for an entire edifice of companies that suck off the healthcare teat. Alas, though, any read between the lines says you can stop worrying about that issue entirely because Speaker Nancy Pelosi favors incremental change. That means UnitedHealth (UNH) is about to go to all time highs and maybe CVS (CVS) , which bought Aetna at what looked like an inopportune time isn't so dumb after all.
Retail's better. To me that's a tough one. There's enough bad and good that we shouldn't be able to have a big move. I am calling that a leap of faith, perhaps based on the spring? Maybe on a belief that with rates lower there will be more home equity loans and homes both new and used bought? The usual suspects, Walmart (WMT) and Costco (COST) can be bought but I am betting on a nice Home Depot (HD) comeback.
Oil's better but I am putting that squarely in the leap of faith category. I simply don't believe it can break out and I would sell all but the majors because they have dividend protection: think Exxon (XOM) , Chevron (CVX) and BP (BP) .
Now before you think that I am being too rosy, once again I have to tell you that with enough that is weak from overseas coupled with that light employment number just two weeks ago, we don't have to worry about the Fed for now. I know that's always a dangerous posture. Nevertheless, there are enough reasons to worry about weaker growth worldwide to make it so the pressure is off. Therefore patience is a virtue. If patient is a virtue than we don't have to worry about fighting the Fed.
And that's the ultimate case for the leap of taste not faith, which means we have some breathing room to stay long provided that the potential hypesters, Micron and Apple, don't both strike out.
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