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UPS Throws a Monkey Wrench
Posted at 11:49 a.m. EDT on Friday, July 12
Will the real economy please stand up, please stand up?
I can't tell you how many people I know who were using United Parcel Service as the giant chit in the recovery play. It made so much sense. We know that the U.S. is getting stronger. Europe seems to have bottomed. How bad could Asia be? We have so much Internet business. We know that this is one of the best-run transports in a totally transport-driven leg of the bull market. Plus, let's face it, since FedEx is all the way back to almost $105, why not play the laggard?
What can I say? How wrong could investors and traders be? A preannouncement of all things. A darned preannounced shortfall. And a bad one. So $4.98 in earnings per share for the year goes to $4.65-$4.85. Or more like it, $5 and change -- the whisper -- is going to be perhaps 10% too high. You want to get really down and dirty? The reasons for the shortfall read like a disaster roll call:
Talk about a triple whammy. What does it say? To me it says that everything you have heard about a strengthening economy must be put on hold, because perhaps rates went up too much, the consumer confidence figures aren't representative, and there's been a big decline around the globe -- this is a global economy that has affected perhaps the most important commerce bellwether, save FedEx, in the world.
Now, before we jump to conclusions, we do know that there are some parts of the economy -- at least the U.S. economy -- that fly in the face of this preannouncement. Auto sales are very strong. You don't get a big increase in the price of gasoline if there isn't a pickup of some degree in business. We know there is job growth.
We also know that Amazon , at least in the snapshot we got today from Goldman Sachs, is doing exceedingly well.
Plus we just had terrific numbers from The Gap and Costco -- two giant retailers that can't be ignored.
Still, UPS' number can't be ignored, and it is a solemn reminder that when you don't have small-business growth, when you don't have corporate creation, when you don't have a lot of speculative lending that helps start-up business, you get a UPS. The real takeaway here is brutal: Those of you who are playing a rebound in the U.S. economy, don't bet that you can play it with just anything. You may be buying the next UPS.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long COST AND GPS.
Why New Highs Matter
Posted at 12:45 p.m. EDT on Thursday, July 11
What do new all-time highs mean? What does it do to the psychology of the market, to how people view stocks, to how people think about equities? That's what's on everyone's lips and it is imperative that the issue be addressed because it does matter to what happens next for peoples' IRAs, 401ks and personal accounts.
First, there's this odd notion that the move doesn't count because it's supported by the Fed Chief Ben Bernanke's largesse. Some people, including my own CNBC colleague Rick Santelli, said that this very morning. It's almost as if the whole move isn't valid because it's artificially inflated by bond buying and it's just plain unfair.
I've got a different view. I ask "unfair to whom?" My whole public existence is about trying to help people make money and preserve capital when it's impossible to make that much money by investing in stocks. I am not about trying to make a leveraged bet on bonds. I am not about abetting short sellers in scaring people away from certain stocks. I am not about betting against the Fed to get the highest return for my rich investors. I did that already. I spent 10 years doing that. I didn't and don't want to do it anymore. I just want to help. That doesn't mean I will always be right, far from it. When I am wrong I point it out even as that just makes me a bigger target. I don't care. I know who I play for. There's no confusion. My private feelings about what Bernanke's doing have no bearing here. They are irrelevant. That's because they aren't about trying to make you money, they are about some soapbox I don't want. So what if Bernanke is the financial equivalent of Despicable Me. It's a blockbuster. And they don't sticker the returns at the bank. They just take the money from your winnings and put it into your account.
Second, these new highs are a verification of the notion that there are times when panic is simply not acceptable. It's not only NOT a strategy, but emotions need to be checked at the door. It was only a couple of weeks ago that this bull was pronounced finished, done, with a bearish matador slaying it in front of all of our eyes.
I want you, for a moment, to consider investing like war. In war there are broad issues of fighting, strategic issues where fates are in play. Then there are tactical issues where you have committed to a strategy, but you need to execute it in a different way.
When the Great Recession raged we had systemic risk in the market. You don't get the Dow Jones Average cut in half, taking it back to levels we saw in the 1990s, without systemic risk, meaning that the whole darned system could implode. That called for a strategy of capital preservation. If you needed the money that was in the stock market for something big, it had to come out. That's a huge strategic goal and I chose that when I thought the risks favored capital preservation over capital appreciation. I guess I could say "famously" chose that because of the opprobrium with which the strategy was initially viewed.
But then with the Dow cut in half and the systemic risk taken off the table by the Fed itself, when the chairman said no more banks would be allowed to fail, you had to choose a strategy of capital appreciation.
Now, almost 10,000 points later, that strategy is still in play because there is no systemic risk. All of these maneuvers since the bottom are about tactics. Do I trim some of my gains? Do I go with dividend stocks? Do I get more aggressive? These are tactical concerns with the idea that you are still trying to make as much money as possible picking sectors and picking stocks.
Why is this so important? Because the vast majority of the time in this remarkable run I have heard people speak strategically about leaving the market. There have been top callers all the ways. Their strategies have been defrocked and often revealed as just derivatives of panic. Let's reveal them for what they are: people who got it wrong. Don't listen to them next time. They hurt you. Typically they called tops because they didn't like Bernanke's handiwork. Meanwhile, look around. The actions of the European Central Bank before the bottom and of the Chinese right now are what these critics wanted. How'd that work? Why do you think we are the strongest economy in the world? The Fed's policies, and our smart executives who took advantage of them, made that happen.
Third, new highs are validators of the asset class. We have seen high-frequency trading and flash crashes and weak and conflicting policies by the government for saving with stocks, many of the issues so poignantly described in the editorial "Why Individual Investors Are Fleeing Stocks," by Charles Schwab. The points are very well taken and I congratulate Schwab for advocating the position of the individual investor quite well. No one else seems to be doing it and that means there's been no pressure on the SEC do to the right thing by the individual investor only by the well-heeled and powerful institutional investors, who often favor reckless innovation and a two-tiered market like the one CNBC's Eamon Javers is exposing with Pulitzer-like precision. Javers' reporting is about how some high-frequency traders are allowed to legally inside trade. Now, I know Schwab has a vested interest as his brokerage caters to individual investors. But others should have that interest at heart and have voided it on the altar of higher profits from richer institutions, even as individual investors were the bedrock of capitalism and should be returned to their rightful place.
I am hoping that these new highs show that the market, as treacherous as it is, can still be regarded as a legitimate asset class for your important, hard-earned dollars.
Why does that matter? Because of the fourth point. The other asset classes are transparently wrong now. The bond funds so many sought refuge in have crushed people after a violent, but small, move in interest rates, at least in the long-term scheme of things. I like gold, specifically gold coins. But that's insurance against stocks, not an investment in its own realm. I like real estate. But the decision for real estate is simply to buy a home or not. I would tell you that despite the rapid decline in affordability for homes, a combination of higher interest rates and higher home prices, the bottom's been missed. But stocks, quite simply, are where the action is.
All-time highs put the market back on the front page. They show that stocks have a pulse. That they are viable. That they can win for you. New records are the brief for the asset class and the brief is a good one.
Now remember tactics vs. strategy. The market is overbought and historically has not been able to sustain these recent gains without turmoil and a pullback. The market is hostage to interest rates staying stable. But the market is not hostage to wholesale destruction of capitalism as we know it as it was four years ago. We have weathered bank failures, high unemployment, European recessions, a vicious Chinese slowdown and, most recently, the collapse of the emerging markets as well as endless scandals and we've still been able to hit new highs. And while the cynical among us will say that it's too late and that anyone who comes in now is a sucker, stocks aren't so expensive that we can't maneuver tactically to gains when individual stocks get hit.
To me, it's quite simply the verification -- not the kind you need if you read or watch me because I have liked the market ever since the systemic risk was removed -- that others need to come back in. Clearly the easy money has been made, but there's plenty of harder money to go around and the all-time highs say they are still possible and still ahead of us.
- a lesson from UPS; and
- market psychology.
- Too much capacity in the industry -- this, even though we have had FedEx take out a ton of capacity.
- Customer preference for lower-yielding shipping solutions, meaning that people are feeling less rich and opting for slower shipments. I mean, what's the hurry? It will get their eventually. Where is the urgency in the economy? Don't look at UPS.
- And worst of all, a slowing U.S. industrial economy. Huh? I thought it was accelerating.