It's about the balance sheet. It's always about the balance sheet. When we look at the collapse of the Nasdaq in 2000, we can trace the difficulties to the balance sheets of some 330 companies that rose and fell mainly on hope and then on a lack of cash. The biggest ones, the telco companies, had taken down huge gobs of debt to build out networks that weren't even needed a decade to come.
Others simply came public with something very simple in mind: Be bought by someone else.
For many, it actually worked. But if you weren't bought, you died, because the cash spigot, the IPO and secondary markets, just dried up.
Fast forward to 2007 through 2009: It was all about credit, or a lack of it. Systemic risk had made it so that the only financial companies that could make it through to the other side had to have meticulous bankers, gigantic balance sheets and, yes, the government at their backs.
The ripples were so horrendous that even companies like Caterpillar (CAT - Get Report) and Deere (DE - Get Report) , which have their own credit arms, were on the ropes. An astonished Federal Reserve pulled off some astonishing moves and bailed out the finance system, but not before Wells Fargo (WFC - Get Report) , Action Alerts PLUS charity portfolio holding JPMorgan (JPM - Get Report) and Bank of America (BAC - Get Report) became national banks, with hobbled balance sheets and heavy regulation, but huge market share.
During the downturn, the consumers' balance sheets got shot to hell if they bought a house any time in the period from 2005 to 2008, and we sold a whole lot of houses. The unemployment rate shot up, health care costs ballooned, and taxes went higher.
Then in 2016 oil, gas and a host of commodities plummeted beyond what anyone thought possible, causing a whole other cohort of debtholders to go down for the count.
Finally, we had the endless retail bankruptcies culminating, in the total trashing of teen apparel stores, sporting goods businesses and second-rate department stores.
I bring all of this up because after thinking back through the first week of conference calls, I am hard-pressed to find one company besides General Electric (GE - Get Report) with anything but a beautiful balance sheet.
I can't stress that this takeaway is like dry tinder for whatever is thrown on to it -- lower corporate taxes, increased bonuses, repatriated capital, rising commodity prices, increased auto sales, more technology spending, new pipelines, less regulation. It's all playing out in ways that seem phantasmagorical. And, you know what? Other than a couple of guys on the floor of the exchange with ever-changing rally caps, it just doesn't seem to mean all that much.
A lot of that is because, to quote a funny piece of research, a Goldman Sachs upgrade of Procter & Gamble (PG - Get Report) from sell to neutral because "we see limited catalysts to drive underperformance."
When I saw that phrase while putting that night's studying to bed, I said, that's it; that really crystallized how I feel: with almost no company struggling under the weight of too much debt, I see limited catalysts to any given stock's underperformance.
In fact, I can make cases for so many companies, because all of the clients in the economic food chain are solvent, with improving balance sheets and a desire to spend like I have never seen before.
Now, you always have to caveat things, because it is never this good and has never been this good: low rates, accessible capital that's not even needed, demand rising for everything, with low inflation.
But the phrase "it can't last" has cost you so much opportunity, that you just sound like a schoolmarm.
Am I saying "here's the pool, what are you waiting for?" No. I am simply saying that there are enough good stocks right now, with great businesses, that you do have a plethora to choose from and it's not reckless. It's not reckless, because there have never in all of my life been more companies with better balance sheets than there are now. So, heaven forbid, if we get a pullback, you can just buy more in stages on the way down. Why?
Because there are limited catalysts to drive underperformance, that's why.
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