Bulls Take 2 Out of 3 in Game of Worries
Posted at 11:16 a.m. EDT on Friday, June 5, 2015
Here's a classic relief rally based on the conclusion of three big worries: employment, oil and Greece.
Employment was too strong and it is sending interest rates higher and the dollar into a tizzy. Just point blank bad for the consumer packaged goods but excellent for the banks. I think there will be plenty of people saying we will have a June rate hike on this -- I am not one of them -- but beware of the chatter. Rates up -- good for the banks. Bad for pretty much everything else.
Oil is real positive. The statement about status quo shows that the Saudis are watching our rig count go down so they don't need to pump even more and they seem sanguine about the fact that current production is still running higher than last year. I would have thought that they might put the screws to America again. They aren't.
Greece? The insane melodrama is now pushed back again and the deadlines are all phony again but its backburnered again.
That means two out of three for the bulls. I do not like the dollar here. It can derail everything from Johnson & Johnson (JNJ) to 3M (MMM). Industrials and pharma are a terrible thing to lose even as we keep the fins off of higher rates.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JNJ and MMM.
Posted at 6:46 a.m. EDT on Thursday, June 4, 2015
Sometimes the irony is so in your face, you have to be thinking, "are they doing this totally to trick me?"
I am talking about the astonishing lockstep decline of the U.S. stock futures with the European bourses, when the proximate cause of the bruising in Europe -- the strong euro -- is just what we need here for higher prices.
That's right. Europe's rates are rising and the euro is going up because Europe's caught a whiff of inflation, and never doubt the Europeans' resolve to fight the last war of inflation, even as it's growth that should be the worry, not the value long-term of the financial instruments that they trade.
Remember the real correlation going on right now between the two markets -- Europe and ours-- on both a moment-by-moment and a full day basis: if the euro gets strong, our stocks rally. If it weakens, we get hammered.
This relationship holds true at all times EXCEPT the overnight markets and the 9:30 to 9:50 am interregnum. Then it reverts to true north.
Of course, this stands to reason. The stocks of our companies trade on their prospects, not on the prospects of the S&P 500. Most of the big capitalization companies in the U.S. do a ton of business overseas. Their estimates have been slashed endlessly and mercilessly, not because of business here, which has been fairly robust, but because of business in Europe, where we have had the stuffing kicked out of our companies.
In fact, the chief reason why the price-to-earnings multiple of the S&P 500 is so high is because it represents "actual" earnings and not the "constant currency" variety we have had to resort to in order to demonstrate that our companies are actually not getting killed fundamentally but just in translation.
If you don't understand this, just remember the curious case of PVH (PVH), which reported a down quarter year over year on Monday and yet is up a quick 10 points because people decided, enough already, if the superfreakin' dollar would just cool off, this company would have reported its best quarter in ages. In fact, you saw a 10% comparable store sale gain in Europe for the once-ailing Calvin Klein division if you dug deep, although it was totally obscured by the dollar conundrum. The fact that we could look through that is a sign that the dollar has either topped out or we know these reported non-constant currency numbers no longer have bearing.
Let's play it out. The Dow Jones futures are down hideously this morning. But when I go through the 30 components of the index I see only Wal-Mart (WMT) and Home Depot (HD) as being hurt by today's set up as they need stronger dollars to buy goods. However, Wal-Mart has ample operations overseas, so in the end you could call it a push. Home Depot's not overseas, and I would care more about the peso than the euro for this one.
I would say that Verizon (VZ) could be hurt as that is a function of interest rates, but as Europe's bond markets recoil ours is placid so there is no reason to sell Verizon unless you think it is threatened by a possible T-Mobile DISH (DISH) deal.
You might wonder if UnitedHealth (UNH) could see outflows because it is a domestic play and money will rotate into the industrials that have been hard hit by the strong dollar. The rotation overcomes everything, EXCEPT if Anthem (ANTM) buys Humana (HUM) this weekend. Then I am raising numbers, UNH.
That, however, is it.
The financials will benefit, especially the two that are front and center in the Dow: JPMorgan Chase (JPM) and Goldman Sachs (GS), as both need higher interest rates -- they are tame this morning, but biased to the upside -- and they have a ton of work in Europe that translates poorly. They will do better now.
I don't even have to tell you about the techs. They are almost a third European on average. You want to bet against Boeing (BA) or GE (GE) when they have so much to lose with a strong dollar vs. Airbus and Siemens respectively?
Hasn't Disney (DIS) been dumped by people fearing an easing in tourism? I know Visa (V) has, and Charlie Scharf, the ultra-sharp CEO, has fretted about the impact of the strong dollar on multiple fronts.
Arguably few companies have been hurt by the strong dollar more than IBM (IBM), which looks like it is going in reverse because of currency.
Cisco (CSCO) -- another Action Alerts Plus holding -- and Microsoft (MSFT) are actually doing well in Europe, with the former having its strongest European sales that I can recall. Who knows how high that can soar?
I could go on and on. But I remind you, again, of a simple precept: If you are shorting the futures, which of these stocks are you really betting against?
Good luck: that's been among the strongest stocks out there!