Meat Eaters After All

Theories are tough to prove and disprove because there's always mitigating circumstance and embedded prejudice (I have a book at home with 300 pages of theories each with three or more). A great example of just how difficult it is to sway opinions steeped in theory is the latest fact about the T-Rex dinosaur. Turns out it was carnivorous!

You say that was already common knowledge, but among the experts, it was anything but that. You see most mavens believed the evidence was clear, and the T-Rex was really a scavenger. I guess it was the short arms. So even though they roamed earth 65 million years ago (the end of the Cretaceous period and 70 million years after Jurassic), only now does it seem clear how they dined.

The Eureka moment came from the discovery of a Tyrannosaurus Rex tooth lodged into the healed bone of a Hadrosaurus that was obviously bitten, then escaped and began to heal. It's pretty clear from the location of the wound T-Rex was thinking about dinner.

When Theories Cost You Prosperity

The beauty of the stock market is you can believe anything you want as a basis for investing or not investing. Everyone's got a theory. The one that bugs me most is the notion that the only thing driving stocks higher is the Federal Reserve. Those adhering to this theory are often not investment professionals and certainly not students of history.

I happen to agree the Fed is dangerous, and money printing is designed mainly to help banks (read Creature from Jekyll Island), but corporate earnings along with future potential ultimately dictate the value of stocks. One thing is for sure, those folks that bang the anti-rally drum the loudest, pointing toward Fed policy of the White House, mostly have great jobs and solid retirement plans (These same folks think college isn't for everyone despite their own degree and homeownership is also not a big deal even as they often own more than one home). Sadly, the folks listening to their "market bad, rally fake, stay on sidelines" rhetoric don't have great jobs or buckets of retirement cash. The listener doesn't get paid $20,000 a speech. Those that have followed the merchants of doom have become poorer and are dangerously nearing a point where the only thing they can root for is a massive stock market crash.

You see inflation, while anemic by official accounts, still eats away at cash in bank accounts and gold has taken a major dump (I think it comes back, and coins should be kept in a safe place for the future). Compounded by (huge) money missed from the current rally, and those still on the sidelines are seized with anger and frustration. The sideline watchers are now even more vested in theories and predictions that may not come to fruition—even if they're correct. In fact, the big problem with all the doom and gloom stuff is the waiting.

Picking tops and bottoms in the stock market is hard—I jokingly say anyone that does is lucky or lying—but pinpointing the end of America and the next great cataclysmic disaster is beyond the prognostication skills of Nostradamus. I don't doubt the weight of $3.0 trillion on the Fed's balance sheet hangs above us like the sword of Damocles, but that doesn't change some facts about the stock market. Great companies can make money and take market share in a $16.0 trillion economy. This was Bernanke's answer to a skeptical congressman yesterday when asked why the stock market was higher.

The mistake Bernanke made was not saying the market is up on the underlying global economy.

The only place I see extra money seeping out to Main Street is in student loans and auto sales. For the former, it's the federal government facilitating those loans putting the risk on taxpayers rather than the private sector, and for the latter, it helps that the average car is 13 years old and cash-for-clunkers made used cars exorbitantly expensive. Be that as it may, student loans are going to be a problem, yet it has nothing to do with people shopping at the Gap.

Therein lays the rub and why it's been irresponsible for the doomsday crowd to dismiss any corporate development and coinciding increase in share price. This is not unlike the climate change crowd, which gets to argue doomsday as well as point to any storm, hot and cold weather and other things that have existed forever, to press their case. There will be market pullbacks and corrections, but right now, America's economy is too strong and its people (still) too resolved for it to crumble overnight.

I say live your life to the fullest, read, travel, sing, dance, make love, and plan for your future and the future of your children. I don't say problems aren't growing beneath our feet, but I do say the stock market isn't up on smoke and mirrors and money printing.

I can only hope those on the outside looking in will find a way to shun the noise and make some money.

Missed Headline:

It seems to me everyone missed the biggest news of the day when Bernanke slammed his inquisitors and the Obama economy with this last answer on what would happen if the Fed stopped being accommodative:

Obama threw Bernanke under a bus, yesterday Bernanke threw Obama economy under a bus: "If we were to tighten policy, the economy would tank!"

I think part of that comment was frustration at Washington DC and maybe a little jealousy that the White House gets all the credit from the media for a (very) modest rebound in economy. Beyond any personal animus this comment speaks volume. It goes to what I've been saying about the stock market rally and the part that Main Street gets more than Wall Street. The US economy is the biggest threat to the stock market rally. When people look out their windows and walk down their Main Streets or look at their paychecks they know something's wrong.

They can't see how the market could be up when their world exists on a dark cloud of despair. They're right but what we don't understand or appreciate is how much the rest of the world wants to be American and needs our stuff. Take two earnings reports from yesterday:

Mattel (MAT)

The company missed consensus and the stock took a ding from its all-time high. Geographic sales:

North America -2%
International +4%

Notes:
Barbie -12%
Hot Wheels -3%
Fisher Price -35
American Girl (driven by Saige 2013 Girl of the Year) +14%
Other Girls (mostly Monster High) +235

International Business Machines (IBM)

Beat on the bottom line, expanded margins and guided higher. Geographic sales:

Americas $10.7 billion -3%
EMEA $7.8 billion -1%
Asia- Pacific $5.8 billion flat
BRIC +1%

Notes:

Global Tech $9.5 billion -2%
Global Business $4.6 billion +2%

Software $6.4 billion +5%
Hardware (systems and tech) $3.8 billion -11%

Overall gross margins improved everywhere but hardware - overall 48.7% from 47.6% year over year

This is a recurring theme throughout earnings thus far in this round of releases but has been the case for a few years and a reason stocks have moved higher even as Main Street wallows in a lackluster recovery.