There are two universes. There's the booming economy and there's the faltering economy, and one's fantasy and the other may be reality -- although occasionally they bleed into each other.
That's how I feel after examining this spate of incredibly positive earnings news from gigantic retailers like Walmart (WMT) last week, Home Depot (HD) Tuesday and now Target (TGT) and Lowe's (LOW) Wednesday, vs. the dreary set of facts that drove the market off a cliff just one week ago.
The question is, which one is right, the robust one that we have seen this week or the teetering one that we visited just a few days ago -- the one that had me on the "Today Show" last week urging no panic when, once again, panic was the order of the day?
Let's dissect these two universes, because they are most certainly colliding.
The first scenario, the one that drove stocks down hard last week, has to do with the machinations of the bond market, namely that short-term rates -- the ones controlled by the Federal Reserve -- are higher than the long-term rates. This odd inversion always precedes a recession, no ifs and or buts. It's always a sign that the Federal Reserve is off the mark and the Fed has caused many a recession including the biggie, the great recession just 10 years ago.
Therefore, we cannot possibly conclude anything but that a recession is ahead of us. It's ineluctable.
The reason? Simple: The world is slowing and it is now at our doors because of the worldwide trade war. The president of the United States has decided that it is worth slowing our economy, if it means that we stop China from wrecking our jobs, stealing our intellectual property, spying on us, sending us killer fentanyl and doing everything, but throwing bricks from the Great Wall of China.
It all makes so much sense. The yield curve inverted, because of our trading intransigence, slowing commerce and a Fed that's clueless, to quote our quotable president. After all, didn't tariffs help cause the Great Depression? You can wrap a bow around this coming recession, and it's time to stock up on spam and Velveeta for the coming dark days. How could the market not collapse?
Now let's consider Wednesday, which drove the market all the way back to where it was where the first universe wrought its havoc.
The day started with earnings from Lowe's and Target, both strong enough to confirm what Home Depot and Walmart said before them: The consumer is good and actually getting stronger. The tariffs? They are a non-factor. Nobody's terrific, I guess. Price inflation? How about deflation. Traffic is way up -- a classic sign of a flush consumer and as the quarter wound up the shopping accelerated.
Contractors in particular accelerated purchases, in part because of the ultra-low rates. The consumer, buoyed by knowledge that jobs are plentiful -- and workers are in short supply -- were emboldened to invest in their homes, which are rising in value as they are growing more affordable as mortgage rates go down.
Executives at both companies told about labor-saving initiatives that kept prices down. These initiatives are often started in Silicon Valley -- we spend a huge amount of time out in California, to learn about these new technologies that breed deflation as a matter of course.
No sooner did we digest those positive earnings reports then we heard from Brian Moynihan, the CEO of Bank of America, that the reason for our ulta-low rates we have is demand for our bonds from overseas, not because of economic weakness.
Why not? As he said, if you are earning less than nothing for owning 30-year German bonds, why wouldn't you go buy dollars and then buy our own 30-year bonds that yield more, if you are able or allowed to do so?
The inability of the Europeans to grow their economies lies behind their low rates and they aren't dragging our economy down, hurting employment and commerce -- they are driving our rates down, accelerating our economy in a most bountiful way.
In fact, the only thing that's holding us back, the president said again, is that the Federal Reserve Chairman Jay Powell is such a chowderhead that he doesn't want our rates to be as low as the Germans' for no reason whatsoever other than he 's wrong.
Yep, the alternate universe is one of good cheer, save the tariffs, and we learned from Home Depot not to be terrified, because all of their suppliers are moving out of China, so they can't sink us.
Which universe is right? The one where our rates are showing a dramatic decline in activity and we are importing weakness from overseas, which will toss us into recession as it always does leading to unemployment and credit issues?
Or, is it the one where the biggest issue is finding workers to meet the demand of a booming economy?
It's funny, I would love to say that the optimistic alternative universe -- the one we shouldn't fear, is too optimistic, to quote my erstwhile partner, Chief Economic Adviser Larry Kudlow -- is most likely to prevail.
But the pundits talk endlessly of "not if but when" there will be a recession, because the president isn't going to fold on tariffs, Chowderhead Powell won't cut rates quickly enough -- something the Fed minutes seemed to indicate when they were released at 2 p.m. today -- and we could have another yield inversion any moment.
That talk seeds fear, which erodes confidence, which causes those who would build or hire to pause, which leads to a downturn in consumer spending and investment.
It's easier to spook than it is to champion. Making matters worse, most of the pundits dismiss the comments of Walmart, Amazon (AMZN) , Target, Costco (COST) and Home Depot as anecdotal, but the yield curve is gospel and if you dismiss it, you are doomed to look like a fool when the recession occurs. Once again the word ineluctable comes to mind.
You know what's a shame? WATCH, my acronym for the big successful retailers, is anything but anecdotal. These companies probably canvas the behavior of almost every family in this country. The ones who can't afford it, go to the dollar stores and they are booming, too.
Not only that, but the WATCH companies are so powerful that they all dismissed the tariffs as almost meaningless. Lowe's, which has a great quarter, didn't even get any questions about the tariffs, as that horse has been beaten too much already.
Me? I don't want to spread fear.
But I don't mind spreading knowledge and the knowledge is that if the president were to calm the rhetoric on China and simply say "we are talking, I will let you know," rather than bragging about taking them on like some sort of trash talking wide receiver -- and if the pointy-head economists would learn to trade currencies and bonds as I have -- we would be far less fearful and far more confident.
We don't just have nothing to fear, but fear itself, we have the fear that comes from angry rhetoric, frightening jeremiads and people who don't read or listen to the conference calls, because they think they are irrelevant or because they are so boring.
What a shame.
Maybe if they made the calls more exciting, the dreadful opining economists and Fed heads might understand the fragility, and get with the bullish program.
Amazon and HD are holdings in Jim Cramer's Action Alerts PLUS member club.