Is the big theme of this moment that we are taking a recession back off the table? It sure seems like it. A lessening in trade tensions with China and a possible resolution with Brexit might be driving things but we are also getting some anecdotal evidence from this quarter's earnings season that is telling us not to be too negative.
Of course, the macro guys always hijack the discourse, talking about how rates are signaling, with their steepening, that things are better again.
I don't want to game the Fed. Lord knows we have plenty of people who do that. I don't want to fool around in that world any more than I have to, nor do I want to guess what the Fifth Circuit Court of Appeals will do any day now about striking down the Affordable Care Act. These are parlor games.
I like, instead, to build the mosaic and here are some of the pieces of that mosaic cleaned this week.
First, Dow Chemical, which is a gigantic barometer of the economy, is finally seeing the building block chemicals it makes bottom in price. Chemicals are pure supply and demand and I felt reassured about what Dow (DOW) CEO Jim Fitterling said to us yesterday.
Second, I like the way that the higher-yielding stocks that have more risk, including Dow, are trading. I follow a whole bunch of high-yielding companies, especially the REITs and the retailers, and they are almost all universally doing better. For example, Caterpillar (CAT) did NOT report a good quarter. But the stock didn't get slammed. Why? One reason is that the dividend, which currently yields three percent, is no longer in doubt.
Same thing with, say, a Tanger (SKT) , the retail factory outlet REIT. It's been horrendous and I believe that a lot of people think that its dividend is not safe. But the stock's been rallying. I think that's because there's a little more faith in the consumer not hunkering down to the point that she doesn't even go to the outlet store.
People had also lost faith in Kohl's (KSS) to pay its dividend, which is how it got to 6%. I know they are still concerned about Macy's (M) . But it is heartening to see the rally in a pretty decent stock like Kohl's.
It's a confusing and more subjective indicator than I like. American Electric (AEP) just hit an all-time high yesterday, in part because some cling to the recession thesis. It shouldn't be as strong as it is; a lot of that 28% gain is from a belief in a severe slowdown -- and this is the premier utility to hide in.
Third, there are some signs that September was just plain better than August. Yesterday we got some Caterpillar machinery numbers that showed a very nice uptick in business. AEP did tell us that they felt the economy has strengthened during the quarter -- and it is the biggest power distributor in the country, so it has a darned good read on things. Intel (INTC) gave a depiction of pretty amazing demand across all of its consumer and data center oriented products. Again, all anecdotal. But is it anecdotal if Visa (V) says that its quarter ended strongly with 47 billion payment transactions, an increase of 5.3 billion, or 12.6%? That's not all that recessionary.
Fourth, let's not forget the incredible consumer, as gauged by Jamie Dimon who, at the beginning of this reporting period told us that JP Morgan's (JPM) book of consumer business is the best ever.
Now I know the lazy intellectuals that populate the macro universe will say that I am sowing the seeds of my own thesis' demise, that the Fed will not cut.
I say, that the Fed would be nuts NOT to cut. Our international companies are struggling. The dollar's been a headwind quarter after quarter. The auto companies need cheaper financing -- which is based off the short-rates -- and there is no inflation. The idea of "saving" the cut until we really need it is just plain stupid. It's like saying we are ready to treat the sick when we all know that preventative medicine is the most rational health care approach.
To me, taking down the recession thesis is the most important undercurrent on the table. It's positive and it's just beginning to assert itself. Let's hope the Fed isn't binary and recognizes it still has some mistakes to correct before it can get too restrictive again.