Who's afraid of a big, bad inverted-yield curve? Certainly not those who have listened to the conference calls and who know that the consumer is alive and well and spending -- including the president of the United States.
Monday, we saw what happens when you follow the intelligentsia into the abyss of the macro, when you do a mind-meld with something no one understands -- the inversion of the yield curve -- and forget that our economy is consumer based.
An inverted curve should mean that we are about to go into recession, but tell that to the tens of millions of people who shop at Walmart (WMT) each week. Mention it to the United Parcel Service (UPS) carrier who has to deliver hundreds of Amazon (AMZN) boxes every day. Ask the Mastercard (MA) and Visa (V) geeks who count the transactions processed every day or to the bean counters at the Apple (AAPL) store where the service revenue stream grows by leaps and bounds. These people simply don't see the worries, because they don't look at the inverted-yield curve. They don't even know what it is.
Now, I get the recession talk and I am pretty sure we haven't seen the last of the inversions, because that would mean that, suddenly, our bond yields wouldn't be more competitive that those of Europe. If the Germans don't stimulate soon and the Chinese remain desultory in their efforts to combat their tariff woes, it is very difficult to think why we wouldn't go all inverted again and we could repeal some of the Dow's 800 point romp that started when the 10-year yield hit its low.
But let's dig into what triggered this rally, which began before the end of the inversion.
First, we are always hearing people yap on and on about how companies won't be able to hit the estimates, let alone beat them. Those who say this stuff typically looks at all sorts of top-down data, data I frequently find to be worthless because it always seem to be spun as a signal of a recession that we should not ignore.
I. on the other hand, look at that beautiful Walmart quarter, with comparable sales running at 2.8%, much better than expected, and I think, don't those consumers know about the tens and the twos? All they might know is that they can refinance at record lows or get a terrific mortgage on a new house. What fools these Walmart mortals be?
Second, the semiconductors had been trashed endlessly as tech investors decided there was no snap back to the group. That's because of concerns about cellphone slowdown and decisions by the Chinese to buy local, meaning don't buy American, if possible.
Looks like no one told the folks at Nvidia (NVDA) , nor their myriad customers who are back buying after a hiatus that the company acknowledged ages ago, but predicted to us when we went there in the spring would soon end. Well, it sure is over, and that's because of a host of reasons. When we visited, we saw the future, a graphic user interface chip that would make video games look far more lifelike than the current iteration.
Ray tracing is here; it just kicked in and it will soon engulf the entire gaming industry. We saw chips to simulate self-driving, something that must happen if Lyft (LYFT) and Uber (UBER) and the like are going to make money. We learned that Volvo (VLVLY) is actively engaged with the which is terrific news for Uber, because when we went there in the spring we saw the Volvos on the Uber factory floor. We saw chips to be used in the data center and learned that while there was a pause in spend, it would end, and apparently, it has.
Finally we saw chips learning to infer, no longer taking our language literally. When you say, "Oh, go jump in a lake," the computer without Nvidia chips goes to (GOOG) Google maps and looks for the closest lake. A computer powered by Nvidia knows that the talker is just angry and doesn't mean to dispatch you to the nearest body of water.
Yes, conversational artificial intelligence, CEO Jensen Huang tells us is coming. Everything that moves will be autonomous. Every major industry is incorporating AI -- from healthcare and finance to manufacturing and transportation. These secular trends will not be stopped if we get only a 25 basis point cut or a disturbing Fed chairman speech from Jackson Hole this Friday.
The blow-out Nvidia numbers were reminiscent of the old days, the days when Everest got re-named Nvidia and now answers to that name if you have a fist full of roast beef.
You know I am a huge believer in Nvidia and Huang, but I had no idea this company would have enough pin action to power this leading group forward. The roar of Texas Instruments (TXN) , Advanced Micro Devices (AMD) , NXP Semiconductors (NXPI) , Broadcom (AVGO) and so many others drowned out the drumbeat of a 30-year running amok. No one told Huang that his product's dead unless the Fed cut not once, not twice, but as many times as possible. Turns out that Jay Powell's rate intransigence and intra-cycle mumbo jumbo played no role in the purchase of the latest and greatest edge chips or gaming GPUs.
Finally, there is Apple. We got a bunch of notes last week that indicated Apple's sales are steady and may be ahead of plan in China. We learned that the service revenue stream continues to be a standout. But the most important thing we gleaned in the last 72 hours? Tim Cook spoke to President Trump about how Apple would be disadvantaged vs. Samsung if its phones would have a tariff and its Korean rival didn't. This may sound pretty cut and dried, obvious, even, but believe me when I tell you that it was anything but, until Cook sat down with the president.
The party line had been that if Apple does so much business and builds so much in the PRC, then it has to face the consequences. Judging by the president's positive tone about his meeting with Cook, perhaps that orthodoxy's now past tense.
Just in case you needed more of a wake-up call than the 30-year or the 10-year or any year, you just needed to listen to the conference call from Estee Lauder (EL) , which reported one of the most spectacular set of earnings and forecasts we have seen in the consumer-packaged goods sector. Now we know that EL, has a terrific mosaic of worldwide business and the piece of that mosaic that is the U.S. isn't as strong as other areas. Still the non-brick-and-mortar stores and e-commerce purchases were incredibly strong.
I don't know about you, but what the heck are people doing using premium makeup with an inversion raging? Do you think that sales of Clinique should have been so strong with that ten-two cross-over? How can anyone justify such strong Tom Ford sales without knowing if the Germans were arbitraging bonds?
Good questions, all.
Now this bullish riposte can easily be undone by a few percentages on a bond that stops only traders in their tracks, not commerce. Understand that the recession dialogue, buried under a mountain of bullish -- yet anecdotal -- evidence hasn't vanished.
But on days like Monday, it sure is hard to find.
Apple, Mastercard, Amazon and Nvidia are holdings in Jim Cramer's Action Alerts PLUS member club.