Handicapping the Horse Race

Editor's Note: The following discussion about the Supreme Court's decision, and how to play it in the market, occurred Tuesday night and Wednesday morning on the Columnist Conversation on RealMoney.com.

Don Luskin 12/12/00 10 p.m. EST: Supreme Court is about to speak. In the night session, Nasdaq futures and S&P futures are beginning to trade higher as soon as the word was out that a decision is imminent.

Christopher Edmonds: Here is key language in the opinion on page 12 of the majority opinion ... "Seven Justices of the Court agree that there are constitutional problems with the recount ordered by the Florida Supreme Court that demand a remedy. The only disagreement is to the remedy."

Edward G. Rendell, chairman of the Democratic National Committee just said that Al Gore will not and should not try to court electors and he should concede.

That speech may come yet tonight. And the finality should push the futures higher into the morning hours ...

Aaron Task: S&P futures now up 63 to 1405.60 in Globex trading; Nasdaq 100 up 40 to 2960.00

Christopher Edmonds: Aaron, I think the futures will now react to three possible things between now and tomorrow morning's open:

(1) A Gore concession and its tone. Positive, conciliatory tone would push futures higher; combative tone, including extended references to his win in the popular vote, will depress futures;

(2) James Baker's news conference setting the tone for the Bush campaign. First words must be conciliatory as well.

(3) Have to wonder if the futures just run out of steam and adrenaline at some point before the open. Some argue that we have already seen the Bush rally. That means the mood of both candidates and their campaigns are important to tomorrow's open.

Christopher Edmonds: 12/13/00 7:57 a.m. EST -- Market reaction to an apparent Bush victory is already beginning:

1. Ken Lay, chief executive officer and chairman of Enron (ENE:NYSE - news - boards), has stepped down as CEO and remains chairman. Jeff Skilling, president and chief operating officer, assumes the position of CEO. Lay, a close friend of former President Bush, is rumored to be in line for a cabinet post, likely Energy Secretary. If so, the move would likely be embraced by the energy industry. And while the Democrats may have policy disagreements with Lay, confirmation should be a cinch.

2. Tobacco should trade up on sector upgrades as a Bush administration could mean an end to the Department of Justice's action against the industry.

3. Microsoft (MSFT:Nasdaq - news - boards) may trade up on speculation that a more amicable end to the Department of Justice action against it is possible under a Bush administration.

However, the futures have come down from Tuesday night's euphoric levels as Gore mulls his options and Bush waits for Gore. The concern is the longer the wait, the less a rally we'll see as the surprise lessens and the "pop" potential erodes.

Jim Cramer: Oh, boy, Chris, I know it takes two to make a trade here, but everything you say I think will be wrong.

OK. I am blunt. But you have simply outlined the total conventional wisdom that has prevailed for months. Now it is time to shoot against the conventional wisdom mongers and I am doing so right now.

Christopher Edmonds: Jim, I won't disagree that rallies may not hold, but I do think you get the relief bump at the beginning of trading. You can argue that Bush is priced into at least Philip Morris (MO:NYSE - news - boards) in the tobacco sector. Not sure you can say the same for Microsoft at $58. We'll see.

I do think, as I said last night, that the "hanging chad" of uncertainty is weighing heavily on the futures into the 8 a.m. hour and that takes some of the bets off the table. You'll note I said "might and could" -- not would -- in the early note regarding tobacco and Microsoft. And the direction of the market here clearly sets the tone on this kind of news.

That said, you can take Talk is Money at Laurel this weekend, and I'll take Ken Lay at the Department of Justice. You'll get better odds, I'll get a better payday. That I am sure of!

Herb Greenberg: Jim, you've got to be more specific when you say you're shooting against conventional market wisdom. How so? What do you think is wrong with Chris' analysis? You think, I would guess, that Bush won't be able to reach apart party lines and that we're facing four years of political gridlock/deadlock, which will be what for the markets? How would you suggest this would affect investors, not traders?

Jim Cramer: OK, I have liked MO since the day the Florida legislature indemnified it, but you just caught a double and it is time to sell it into the strength and buy it back lower. (Credit Suisse First Boston is recommending it today, so you will get your chance.)

I am shorting Microsoft because Compaq (CPQ:NYSE - news - boards) says corporate is slowing and it is no longer about Justice. I need the plus ticks, so keep talking it up.

I am selling some of the drug stocks because we all expected this since Monday.

Look, this is a brutal game. I like Microsoft long term, but this is a ridiculous bump in the face of the declining fundamentals. It is our job to be savvy and anticipate the next move. Again, apologies for disagreeing, but we are playing with Real Money.

Christopher Edmonds: JJC's trading strategy on MO is solid. The momentum in the stock has been tremendous of late and there will, no doubt, be a chance to get back in at lower prices. I wouldn't chase the stock at these prices.

That said, the political backdrop for tobacco should improve under a Bush administration. That is a positive for long-term investors in the sector. And, clearly as JJC suggests, the CSFB upgrade of the sector this morning should provide support, which is my point.

As for Microsoft, the debate is fundamentals vs. perception. Jim takes the fundamental side and makes a prescient argument. I'll take the perception side and suggest that the perception that Bush will "save the day" should give the stock additional support. The question is, does the support hold long enough for the fundamentals to improve? Or do you use the support to get out and look for lower prices? At this point, it's a name I want exposure to.

Gary B. Smith: Go read Cramer's thoughts a few posts back. OK, now how does that square technically? I'm in agreement. Let's go one by one:

Microsoft I would not short, but only because it doesn't fit my method. But, that sharp run-up is begging to be sold, just like Brocade (BRCD:Nasdaq - news - boards) was begging to be sold yesterday.

Philip Morris: The stock has actually weakened ever so slightly in the past few days. Not a layup, but I don't see it closing above $40 very soon. So, a smart move to sell.

Drugs: That's the weakest group, as many drug stocks (of which I am short), started falling yesterday.

Now, things could change on a dime, and I am prepared to change with it. But, Jim's strategy certainly meshes with what I see ... So, who says fundys and technical analysis don't mix?

Jim Cramer: Gary, I find that the fundys and tech mix far more often than not. It is why I often agree with Todd!

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At the time this Columnist Conversation originally took place, only the following columnists had any positions in any of the securities mentioned in this column: Jim Cramer's hedge fund: short Microsoft; Chris Edmonds and clients: long Microsoft, Enron. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.