Recession Stocks Rallied for a Reason

Coke (KO - commentary - Cramer's Take) and Pepsi (PEP - commentary - Cramer's Take) do not move up that much idly.

I was concerned that the move wouldn't stick, that no one would believe Indra Nooyi that the numbers were okay. I didn't think an analyst reiterating a KO recommendation could kayo the bears.

I was reading it all wrong. Stocks that do nothing but go down don't suddenly reverse themselves when estimates aren't bumped. They reverse themselves, and reverse hard, when the thesis of the market is reversing.

That's what happened Tuesday. You see, yesterday was the day that we discovered the fundamentals were sound and we didn't have to worry about the economic crisis. Yesterday was when we learned that the new focus was tighter rates to preserve the dollar.

But the market's not that stupid, believe me. The stock I follow that is the most levered to a weak dollar, the one that has always been most correlated, is KO for Heaven's sake.

What happened yesterday was pretty obvious. The market, which had tried to lose the recession thesis by taking up all sorts of capital goods stocks like US Steel (X - commentary - Cramer's Take) and Cleveland-Cliffs (CLF - commentary - Cramer's Take) day after day, switched on a dime and started buying back stocks that do well in a recession, of which PEP and KO are it.

You saw it in another group, too: Gold,. That selloff was the kind of selloff you only get when it is clear that a government is about to take on recession with a Fed-mandated slowdown. If I am right, the fastest growing biotechs should rally today too, or maybe even the hapless drug stocks.

Understand that I think that focusing on inflation and the dollar is a huge mistake for the Fed given that what's driving inflation -- a lack of oil and a reckless ethanol policy -- and what's driving the weak dollar -- an out-of-control budget deficit -- cannot be contained by the Fed. And believe me it is not like Bernanke is saying to Congress and the President "if you don't control spending I will raise rates." That's way too sophisticated for this guy, even as he gives all the appearances of academic sophistication. He's Long-Term Capital sophisticated, that's what he is.

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At the time of publication, Cramer had no positions in stocks mentioned.

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