Business
I’m a bear when called upon, like in 2007. But this stock is for bulls
All my investing life, which now spans more than four decades, I’ve listened to people tell me how there is a real threat to the stock market, one that I take too lightly. They tend to sound smarter than me, and they have little doubt. In the meantime, I am consumed with doubt, as you must be if you are a good investor and take any threat to the system seriously. You need to check out all possible negatives, especially those that can wipe out any gains and then some. It̵[ads1]7;s always terrifying. The bears, and they are bears, are always armed with ammo that will make you feel like you’re just “whistling past the graveyard,” a cliché as varied as “canary in a coal mine,” which I think should be retired. given that almost no one is still mining such coal mines. Yet, only once has the system been threatened, and that was the Great Recession. I always found it exciting that I was attacked by comedians dressed as intellectuals from the left and right for NOT signaling that there were real problems in the system. However, I can be proud that my “highly articulated” fear made it into the Federal Reserve notes of 2007, where I was mocked for being a Cassandra. I don’t bring all this up to praise myself, but I want to be recognized as a bear when it came to being bearish back then. Which brings me to today. I haven’t been bombarded with so many warnings about how we’re about to embark on a wave of failures of all kinds — shadow banks, regional banks, commercial real estate lenders, real estate investment trusts — at any point since 2007. And I I’m starting to wonder if these negativists are not too close to situations that can resolve themselves quite positively. Let’s take commercial real estate. It is absolutely true that there is much that is negative about it. We have some cities where a combination of crime and working from home has decimated the office market: New York City, Seattle, Portland and San Francisco always come to mind. Now, I don’t want to go as far as CEO Marc Holliday of the more than 13%-yielding SL Green Realty Corp (SLG), where he sees green shoots in the most polluted parts of New York. In his post-earnings conference call less than two weeks ago, he raved about “improving trends we’re seeing in New York as the office sector continues its recovery.” Holliday laments the doom and gloom, saying their “overly negative voices are overshadowing some of the positive signs that herald a slow but steady recovery.” says that almost back means 74%. In fact, Holliday spends much of this conversation dismissing the bears even talking about bail reform, which he believes would make the city safer. But all his qualifications don’t sound like green shots to me, they sound like glasses half full when glasses might be more informed by a half empty perspective. I mention SL Green because it may be the most challenged of the REITs, except for Vornado Realty Trust ( VNO ), a historically good New York real estate company, which just delayed its dividend. I point that out because it is often whispered as “the next one to go.” Now, Holliday might be the most optimistic person on earth, and he can’t be trusted at all. But perhaps things will improve given that more people are actually back at work. The analysts peppered Holliday with contemptuous questions, which I found well parried, but which would drive any bear up the wall. It’s actually a conundrum: the publicly traded REITs are considered to be excellent at their jobs, almost history of what they do. I just don’t see them as the dreamers cutting the bad guys in the great 2007-2009 debacle. When you drill down, you hear that it’s the insurance companies where the big bad lead deals are. Again, I would like to think that is the case. I want to be as skeptical as the next guy, or the guy after him, but I haven’t been able to find the insurance companies with the risk. Again, I saw them in 2007, so I know the woods. But this time I just don’t find the cursed trees, mortgage insurance companies, bond charlatans, or derivatives demons; there’s a similar one i’m looking for and i thought the other day i had nailed one – but when i went deep under the hood i saw rot, but not structural rot, more penthouse rot to extend the analogy. When I dig deeper, I hear that the bogeymen are lurking in private equity, in shadow banks and REITs like Starwood Property Trust (STWD), which are quickly becoming a short favorite for the use of leverage. Then I go and read what CEO Barry Sternlicht says about being a potential tomb dancer, with a lot of loan capacity, and I think this is unlikely to be the storm that washes away a much-vaunted, tight-knit unit. Now with big buildings in limbo – that’s all lease expirations – I’m venturing to other links in the commercial food chain, and it just seems silly. Strip malls: full. Outlet malls: full; shopping malls: full; shopping malls: full; triple net lease single tenants: full. It’s so tight that there were REITs who were secretly hoping for Bed Bath & Beyond to go under so that much higher leases without much development could be signed. Through this process of guessing the weakness, I begin to think, are the bears working nearly as hard as I am to investigate? I mean I send platoons of colleagues out there to spot this ever growing mold and I just can’t find it. Even the obvious things: the collapse of Credit Suisse and the dissolution of the very cool old tower in Madison Square Park didn’t sway me. Now there are so many other places I’m sent to for the no man’s land between bull and bear that could be taken by a spring offensive of negativity, but it just doesn’t rain. Shouldn’t DR Horton (DHI), Lennar (LEN), Pultegroup (PHM), and Toll Brothers (TOL) be on the verge of being run over? Instead, they are at or near the 52-week high. The consumer is supposed to be strapped in, but where does the dollar store go down? Where is the abandonment of brands? And cars? Did anyone even bother to notice the strength of General Motors (GM), which reported the prototypical chorus of sharply better-than-expected results on what could end up being a record earnings season? Believe me, I’m willing to hunt in the obvious or dark worlds to find the various Achilles’ heels out there. But it keeps coming back as a silly ranking in podiatry. Brunswick (BC), the largest boat company, reports and we get a prosaic beat. Yes, we’re getting a shade down, but a benign one. Oh, and wasn’t this the quarter the big cyclicals were supposed to meet their maker? Steel has often been the first to collapse. But Cleveland-Cliffs (CLF), the largest flat-rolled steel company, has a solemn warehouse, but not a solemn quarter, just an unremarkable one. They are the largest car supplier and their lines are sold out. Paper and plastic have gone down a lot, but not enough to make us worry, especially when everything seems to be stabilizing at low levels. I understand that JB Hunt Transport Services (JBHT) says we are in a “freight recession” but we are not getting that from FedEx (FDX) and we did six months ago. Sure we got some real negative comments from United Parcel Service (UPS), but I’m starting to wonder if the fault, dear Carol Tome, is not in the stars, but in yourself. Semis? The bottom is in, which doesn’t mean we can climb through that valley of death, but at least we can stop going deeper. I want more than ever to let my homework take me in a different direction. It would be satisfying to side with at least a youngster or two. But I need proof – and right now, at this moment, the facts keep getting in the way of a hell of a story, one that I can adopt, but we are NOT in a “they know nothing” when I truly believed the worst was yet to come . Unfortunately, or, happily pending your disposition, or more importantly your, positions, there are no four horsemen of the apocalypse ahead at this moment and we cannot create them when they do not exist, in fact we cannot even create them with ChatGPT. (See here for a complete list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive an exchange alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE INVESTMENT CLUB INFORMATION ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY ALONG WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION EXISTS OR IS CREATED BY YOUR ACKNOWLEDGMENT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR REWARDS ARE GUARANTEED.
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All my investing life, which now spans more than four decades, I’ve listened to people tell me how there is a real threat to the stock market, one that I take too lightly. They tend to sound smarter than me, and they have little doubt. In the meantime, I am consumed with doubt, as you must be if you are a good investor and take any threat to the system seriously. You need to check out all possible negatives, especially those that can wipe out any gains and then some.
It’s always terrifying.
