Fundamental Distortion

Maybe one day we can escape the commodity linkage and begin to trade on the fundamentals again, something that seems more distant now than any time I can recall. We are totally marching to gold, to oil, to copper, and not the fundamentals.

Throughout the era in which China has become a superpower and hedge funds have become the super arbiters or what goes up or down, we have been stuck with this fairly bogus linkage that corrupts trading and makes a mockery out of some of the most important financial analysis out there, the actual attempts to discover what's really happening at companies.

You see when we get the kind of action that is endlessly linked to the oil futures or the copper futures or the price of natural gas we get a level of distortion that precludes rational analysis. So we sell Intel (INTC - commentary - Trade Now) when oil's down because that means China's not buying and therefore the world is slowing so personal computer sales will come down. We short Caterpillar (CAT - commentary - Trade Now) when copper's in full supply because that means houses aren't being built and CAT can't make its numbers with a 400,000-a-year home build number.

Baltic Freight Index down a couple of days? Why not blow out of General Electric (GE - commentary - Trade Now), Union Pacific (UNP - commentary - Trade Now), FedEx (FDX - commentary - Trade Now) and Con-Way (CNW - commentary - Trade Now)?

We buy Procter & Gamble (PG - commentary - Trade Now) and PepsiCo (PEP - commentary - Trade Now) when the oil futures trade down because that means we are about to have a nasty recession, even when oil trades down a dollar! We freak out and sell retail when oil goes above $72 because gasoline will then start its inexorable drive to $4 which ends the comeback at Macy's (M - commentary - Trade Now), although boosts the fortunes of Wal-Mart (WMT - commentary - Trade Now).

Or how about when China rallies overnight? Better go take some United Technologies (UTX - commentary - Trade Now) and 3M (MMM - commentary - Trade Now) as they have some real leverage to China, as does PPG (PPG - commentary - Trade Now). But China down? Sell everything, just everything, even if Europe is rallying because no business is done anywhere but China.

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Jim Cramer is co-founder and chairman of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS. Watch Cramer on "Mad Money" weeknights on CNBC. To order Cramer's newest book -- "Jim Cramer's Stay Mad for Life: Get Rich, Stay Rich (Make Your Kids Even Richer)," click here. Click here to order "Mad Money: Watch TV, Get Rich," click here to order "Real Money: Sane Investing in an Insane World," click here to get "You Got Screwed!" and click here for Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he appreciates your feedback and invites you to send comments by clicking here.

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