The Three Markets

There are three markets right now: One is in total bull mode; one is in total bear mode; and one is totally up in the air.

The first, the bull market, is what I call the "food bank" world, which consists of self-financing companies that, even if they do need to tap the debt markets to expand, represent the only trustworthy debt. These are companies like General Mills (GIS - commentary - Cramer's Take), HJ Heinz (HNZ - commentary - Cramer's Take), Procter & Gamble (PG - commentary - Cramer's Take) Colgate (CL - commentary - Cramer's Take) and Pepsico (PEP - commentary - Cramer's Take). Like it or not, they are growing and have solid balance sheets. I say "like it or not" because their price-to-earnings ratios are stretched. Nevertheless, they are safe havens and money has to go somewhere. This is a limited group, and it is hard to see it expanding because the only reason you buy these stocks is if you think we are going into a tough recession. I think that's the odds-on possibility. (Note that these stocks took some hits Friday on rampant and misplaced optimism in the market.)

The bear market? It consists of all the companies that need financial debt and do not have the deposit bases to tap it. They include GM (GM - commentary - Cramer's Take), Ford (F - commentary - Cramer's Take), Goldman Sachs (GS - commentary - Cramer's Take) and Merrill Lynch (MER - commentary - Cramer's Take). This market used to include AIG (AIG - commentary - Cramer's Take), Lehman, Fannie Mae (FM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take), and Bear Stearns. Also in the group is any industrial that needs the commercial paper market, which is why GE (GE - commentary - Cramer's Take) was targeted on Friday. I think this bear market is a natural to be hit by the credit default swap issue, where hedge funds take out insurance on institutions and then kill them with a series of nefarious but legal tactics: buying puts, banging down stocks without upticks, and informing the media and the ratings agencies of the companies' problems. This sort of attack, which I dubbed Kesselschlacht Saturday, is almost impossible to fend off by companies that need to tap the debt markets regularly and need good credit ratings. (Have you watched Ambac (ABK - commentary - Cramer's Take) lately?) Conversely, it doesn't work at all against the food banks.

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