Can we stop being so binary for a moment? Can we stop saying we are either going to hell in a handbasket or that things are going strong and what the heck's the problem?
Thursday we took a step in the right direction. The market was actually mixed. Some stocks went up, while others went down. It wasn't all done in unison, which was the case both Monday and Wednesday.
That said, most of the stocks that rallied are stocks that do well in a recession: food and drug stocks and companies that are growing so fast that they can't be tugged down by the gravitational pull of real slowdown.
That's a start. But it's hard to outrun the bond bears. By that I mean the people who look at rates plummeting and decide that it's because, one, the president is creating a needless, unwinnable trade war -- something I totally disagree with -- or, two, because Fed Chair Jay Powell has yet to declare that he is cognizant of what the bond market is saying despite current data remaining strong. In other words, that he will not let a recession occur and stands ready to take rates wherever they need to go to stop the fear that is gripping all markets: stocks, bonds and gold.
Some reassurance that he sees it, some conjecture why treasuries are insanely rallying would go a long way ameliorate what the heck is happening.
And what is happening?
Let me give you a hilarious tutorial about currencies and bonds, if you can imagine anything being funny about either.
Back in August 1991, I heard about an opportunity to buy Dutch bonds, which were offering much better rates than we could get in the United States. To buy these Dutch bonds, I had to buy guilders first, have that trade clear, and then buy in and buy the bonds themselves.
I couldn't think of what could go wrong. I would own the currency and then I would own the bonds from that currency and pick up some nice yield that made it so I earned more with my cash than I could with U.S. treasuries.
The trader I went to said it would take a little while to buy all the guilders I need -- I was buying $20 million worth -- and then go and buy the bonds.
I was trading out of my then country house in Bucks County, Pa., and I told the broker that my dad has just come in and we were going to go out for a bite and come back, and I wanted the trade done. He said he couldn't assure me it could be done quickly, but he would do his best. I gave him some limits so I didn't get scalped by him.
Pop said we should go to Burger King, and I, being a fat tub of goo back then, said sure.
We took some time. We debated the fries vs. McDonald's. We considered the cleanliness and remarked that all in all it was a pretty darned good experience.
We had it our way.
Or so we thought.
When we got back to the house, I called the trader expecting a report. It turns out I didn't have it my way. While I was gone there was a coup in the Soviet Union. A group of hardline communists had seized the government from Mikhail Gorbachev and all the European currencies, especially the guilder, had dropped by more than 2%. Not only that, bonds had shot up in price and down in yield in a flight to quality that happened so quickly that the trader hadn't been able to buy any bonds.
The special order that didn't upset them cost me $400,000. It was supposed to be risk free. It was supposed to be a gimme. It crushed me. I learned my lesson. Don't go buying foreign currencies and then their bonds, because you could lose your shirt.
Of course the coup ended up failing, the guilder regained some of its luster, but in the interim I took the loss.
What does this have to do with this current market?
These days, if you wanted to do that trade, or if you wanted to buy dollars and then bonds, it wouldn't take as long as getting a burger and fries. It wouldn't even take as long as giving the order to the guy behind the counter.
It's as easy as can be.
And that's what is happening. Instead of being in the stinking, debased euro and their lousy bonds that earn nothing, why not have it your way and get into our market. It's as easy and about as fast as buying 100 shares of Walmart (WMT) , the star of today's trading.
Tens of billions of euros, reals, rubles, and yen are being translated into dollars and buying anything that has yield. Given how easy it is, and how their yields keep sinking, how can you not buy our bonds, especially given our strong currency.
Now, lets throw in a complication. When interests plummet like this it's not just a sign that others want our bonds from overseas. It's also a sign of fear, fear that we are going into a recession.
At the same time the president is arguing that we have an amazingly strong economy. After all, employment is still very robust. But at the same time he thinks the Fed should cut rates. He clearly has an aversion to saying that anything might be wrong with the economy, even as that would help his case.
So which one is it? A boom or a bust. I think we have devolved to all sorts of extremes in this country and one of them is to believe that dichotomy. It's false. The truth is that we are muddling along. The overseas markets are weakening. We know that because Chuck Robbins, the CEO of Cisco (CSCO) , told us that Thursday morning, pointing out that July saw cracks in the economy. But Walmart, the biggest retailer in America told you that things are incredibly strong and the consumer is very healthy. Its numbers demonstrated such. Remember, Walmart is the "W" in WATCH, along with Amazon (AMZN) , Target (TGT) , Costco (COST) and Home Depot (HD) , the companies with the wherewithal to keep prices low and keep customers coming in the doors.
But there's always a contrary view. Yesterday Macy's (M) told a woeful story. Truly dispiriting. I am going with Walmart as the better tell.
And every day seems to bring a new scare. Thursday's? A financial researcher, working at the behest of a short-seller, took on GE's (GE) accounting, saying that the company is headed for bankruptcy. The analyst, who correctly pointed out that Bernie Madoff was crooked well ahead of that hedge fund's demise, argues among other things that GE has lied about its exposure to hard-to-value long-term care contracts. CEO Larry Culp, who just bought a ton of stock heatedly disagreed with the judgment, but the stock got hammered anyway.
Any time you say that an American icon like GE has committed fraud, you are going to frighten a lot of people. I know I have frequently criticized GE for the way it accounted for these long-term-care contracts, but I am confident that Culp has taken aggressive steps to be transparent and reserve enough money to cover most of them. With long-term care policies, policies that cost a lot more than the premiums paid, you can never reserve too much, though, so the charges resonated.
Still, Culp's charging market manipulation. Who can blame him?
This issue isn't going away. And the false dichotomy isn't, either. Which is why we are now seeing stocks that do well in a recession rally-the Kimberlys and the Procters. We are seeing the big techs and the big industrials -- think Cisco and GE --going down, too much exposure to overseas and too much tricky accounting.
The bottom line? As long as rates keep plummeting investors will remain unsure. At least Thursday they actually found some stocks to buy along with the bonds. It's just that they were the wrong stocks to mount any serious rally.
Amazon, Cisco and Home Depot are holdings in Jim Cramer's Action Alerts PLUS member club.