Bear baiting: Who says things aren't improving?
Is a double dip coming? Should we brace for bank losses? Let's take a closer look at these issues.
By Jim Cramer, TheStreet
Won't there be a double dip? Isn't the consumer weak? Aren't we in for another terrible year of bank losses? Isn't housing worse than expected? Isn't Washington killing us? Won't commercial real estate sink us?
This sick litany dogs me everywhere. These issues come up every time I am interviewed by the mainstream media. So let's take them head on.
1. Is a double dip coming? Given that much of the economic activity I see is not stimulus-related -- and I reiterate that the stimulus was a hack Democratic package to help the chief constituency behind the party, government workers, with a pastiche of highway repair thrown in -- I think that a double dip isn't in the cards.
So what is in the cards?
Investors can expect a wildly positive first quarter, which is what you are seeing in the auto business right now. The car companies, in case it hasn't occurred to you, are scrambling to meet production, and the auto-parts makers are getting more than what they bargained for when it comes to orders (no wonder Goldman Sachs (GS) starts Dana (DAN) with a buy today -- they are all screaming cheap). Have you looked at industrial rail-car loadings lately? Steel pricing? Chemical pricing? It is hard to have a double dip when you are coming into the year with this kind of momentum.
2. The state of the consumer. You can always decide whether the consumer is weak or not by looking at the prospects of the marginal retailers -- not the Kohl's (KSS) and the Wal-Marts (WMT) but stocks like Sears (SHLD) and Nordstrom (JWN) on the low and high end. You do not get big numbers out of Sears like we had -- and we did -- if things are bad. Sears is a very cyclical retailer, and the cycle is in its favor. That's what happened. Nordstrom is selling out of expensive stuff. So is Macy's (M). It is cold outside, so go buy some North Face, which is VF Corp. (VFC).
Yet I was asked half a dozen times by less sophisticated media about how bad retail is. Who says this stuff? I have a family background in retail, been behind or near the register since I was 4. This was the best holiday season I have seen in years. The only issue is whether the stores have enough winter inventory for this weather. Or are all the Uggs and North Face jackets and J. Crew (JCG) sweaters gone?
3. Banking. Banks operate on margins, just like every other business. The competition is slim and the documentation for new loans onerous, but money is available. The Fed is taking the 1990 playbook and keeping the yield curve exactly where it needs to be to rebuild equity. Meanwhile, we will muddle through our excess inventory in homes and buildings. We always do, particularly when there is no new construction.
The securitization markets are coming back, which is why the doggier stocks are moving. I get a sense that unless the bigger banks act soon and snap up these smaller banks in their regions, the moment will be lost. I can't tell you how great it is to be a banker without Lehman and Bear in the game, ruining margins and taking ridiculous risks, or how a Merrill doing what it does best, advising individuals, will be so great for the other players who could never compete against these three and not lose money.
4. Homebuilders. The numbers from the homebuilders get better each quarter. Pricing declines less each quarter. The demand, with low mortgage rates and the tax credit, remains OK. Remember, we are a growth country that will eventually not have enough reasonably priced homes for sale if job growth comes back. If it does, you will simply cease following this business, and the whole cottage industry of tracking mortgages and foreclosures will drop from the radar screen. We won't be looking at Case-Shiller anymore in about six months. Dead story.
5. The government’s role. Washington is awful. It is so awful that even the Democrats know it is awful. You are not allowed to criticize President Barack Obama. That's just not in the cards. House Speaker Nancy Pelosi is a relevant piñata, though.
Here's the deal, if Washington were really a worry, then what is WellPoint (WLP) doing at $62 (and going to $90, I might add)? The threat is now idle because the Democrats could lose everywhere to marginal Republicans; while you can't say anything bad about Obama, Congress is despised. Probably should be. However, the notion that we have to care about "reform" anymore is off the table because politicians need money to win elections and the "interests" we are trying to regulate have it.
So it's back to business as usual. Cynical? Coming from a man who has said it is better and safer to invest in Peru than in the U.S., sure. But at least I didn't say, as Jim Hackett, the great CEO of Anadarko (APC), said on my show, that Ghana is more favorable to drillers than the U.S. Take a look at how the feds are trying to block drilling in the western half of the U.S. or how New York state is trying to block Marcellus drilling. We are pathetic. Oops: Congress is pathetic.
6. REITs. If commercial real estate is so bad, why are the REITS screaming? Why has the iShares Dow Jones Real Estate (IYR) been so good? Short squeeze? It is because the equity markets have bailed out all of the public players and the public players can now pick off the distressed private players for a song. The banks raised an awful lot of money in the fourth quarter, they don't need to panic now and dump. It's dumping that causes the problems, and the problems are going away. That's why Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) are now well above where they issued equity. I think it's why they are going higher.
I am never asked about any of these positives. When I try them, they are ignored. When I try to talk about the comeback in Ford (F), I am laughed at. When I say that real-estate woes are almost behind us, people think I am on the take.
Let me ask you a question. Who the heck am I on the take from? I have given up every conceivable way to help myself make money off this bullish thesis.
Yet it doesn't matter. I put it out anyway. I just think it is right to correct the record.
Maybe it will help you make some money.
At the time of publication, Cramer was long Apple, Bank of America, Goldman Sachs and VF Corp.
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