Why in heck is this market not cascading down?
You have the president disbanding the business-leader groups he put together with so much fanfare. You have CEOs openly castigating the president and then being told they are infants who take jobs away from the U.S. You have pure chaos in Washington with some of the president's most important people unable to hide their contempt for statements he made that they feel compromise the office itself because of bigotry.
And then you have the absolute definition of confusion -- the disbanding of the two Trump business councils in what looks to be a move that was one step ahead of the CEO posse's departure.
So why did the market not plummet?
The answer? The market is not and has never been a referendum about Washington. Sure, there are presidents that are more pro-stock market than others. I guess we have one of them. President Trump truly believes the market is a referendum on his actions. I have always thought it's not worth disputing. Nevertheless, it's important to remember that the stock market did pretty well under President Obama, too. He just never claimed ownership.
But let's step away from politics because while I do believe the market would be lower had Hillary Clinton been elected because of the surfeit of regulations I believe she would have promulgated, the stock market is about the growth of sales and profits of companies, actual individual companies, and how those two should be valued. When you consider that equation, you know that, as important as these councils and private industry cooperation with the president might seem, it just hasn't mattered all that much.
What matters is that sales and profits have been excellent this year, particularly for everything but select retailers and all the oil and gas business, and low interest rates and slowly rising inflation have combined to make those sales and profits worth more than most expected. Sure, the Fed did release minutes today that showed some on the board fear inflation heating up. Some don't, though. Either way, it's not a big calculus unless you are running a business that has labor costs jacked up by mandated minimum wages.
So let's get a couple things straight. First, I hate talking politics. My views should be of no interest to you. I do like talking stocks, though, and the chaos in Washington -- and it is chaos -- makes Washington even more irrelevant than it has been in ages.
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That's because even though there is chaos, it is Republican chaos, so it won't be anti-business. Remember, this time the chaos revolves around important civil-rights issues, issues fundamental to our nation. But not fundamental to our nation's business.
Hey, listen, last Wednesday the chaos revolved around North Korean ICBMs and the war of words between our nation and whatever you want to call North Korea. We got through the existential dilemma of launching a war that would most surely wipe out 10 million South Koreans.
Now we are getting through issues involving what the front page of the New York Daily News perceptively branded Sympathy for the Devils.
Problematic and suboptimal, to say the least.
Yes, there is no doubt that if we got tax reform, something the president's people are now promising by Thanksgiving, it would matter. Companies would have even bigger profits. But let's be candid here. Congress has yet to raise the debt ceiling. Congress wants another shot at repealing and replacing Obamacare. Congress people, compared to the rest of us working stiffs, is on vacation and takes a ton of vacation -- more than we are allowed for certain -- thereby assuring that not much can get done even if there were some sort of unanimity. Which there isn't.
So what do we do? We hold out that someday Congress might get it together to do something, but we don't need to think about it as long as they stay out of the way of American business.
And what is American business doing? Making money hand over fist, that's what it is doing.
How is that possible?
You need to understand that the business world is made up of cycles. There are all sorts of cycles. There's the housing cycle, the consumer spend cycle, the auto cycle, the tech spend cycle, the non-residential construction cycle, the truck build cycle, the oil and gas cycle, the mineral cycle, the aircraft cycle and I could go on and on.
But the one thing I would tell you is that if you throw darts at my cycle list, unless you hit the auto cycle, you are going to find that you are in a sweet spot of all of these.
Some have to do with demand. There's more demand for homes than there are homes. Think of everything that goes into a home. Housing is 10% of the gross domestic product, but because of all of the accouterments both outside and inside the home, plus all of the financial and legal ramifications of buying a home, it punches way above its weight.
Autos are real important, and they aren't growing. However, let's recognize they aren't peaking at a low level. They are peaking at a relatively high level.
Aerospace? There's insane demand. In fact, some would say it's a secular growth situation because of the middle-classification of the world. We have secular demand in lots of tech even as some regard it as a cycle. Remember, if it is a cycle then it means boom and bust. If it is secular, it means sustained boom. If you think growth in cellphones, the Internet of Things and artificial intelligence are secular, as I do, there are a ton of stocks you would be buying. The manufacturing council disbanding wouldn't mean anything to you. Nothing at all.
In fact, if the president hadn't dissipated his presidential power on these issues, he might have been able to force more CEOs to build businesses in the more expensive U.S. When you see the moral authority of the man be drained in a swamp of tweets and impromptu shouting matches, that means you can probably move your business offshore without all that much worry about the tweet or the phone call, for that matter. You can probably even raise earnings estimates off that erosion.
Anyway, you get my drift.
I know retail has been tough principally because of price transparency, which is what Amazon (AMZN) is really about. You can't fool the consumer anymore. I know there are too many autos. But they've had a terrific run.
Cramer says Walmart is in Amazon's cross-hairs.
Making up for that, though, is a weaker dollar, which makes it so we have less concern about something that's bedeviled us for years -- lower energy costs. Only 6% of the S&P is really benefiting from higher energy costs, which leaves 94% as winners.
So I am urging people to recognize that you need to look at businesses as a sum total of the prospects of their sales and earnings and then graft on what you would pay for those judging from the price of money -- interest rates and inflation. Beyond that, sure we can get geopolitical and we can get mired down in whatever is happening in Washington, but never forget the four walls of the spreadsheet are far more powerful than the four walls of the White House, even as fake-news outlets might say someone has called the place a dump, we just don't know who did.More From Jim Cramer
Originally published Aug. 16 at 4:25 p.m. EST.
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