In the End, Retail Is an Earnings Story

The lunacy of today, the bullish lunacy of today, is expressed by the dichotomy between Whirlpool (WHR - commentary - Cramer's Take) and Sears (SHLD - commentary - Cramer's Take).

First, the thesis. Retail is rallying fabulously because of the two-month low in jobless claims. People are buying JCPenney (JCP - commentary - Cramer's Take), Ralph Lauren (RL - commentary - Cramer's Take), Kohls (KSS - commentary - Cramer's Take), Nordstrom (JWN - commentary - Cramer's Take), Phillips-Van Heusen (PVH - commentary - Cramer's Take), Costco (COST - commentary - Cramer's Take) and a bunch of others because they are betting "we have no recession."

The thesis, on a day like today, is so loud, so glaring, that you feel you have to be a buyer.

Now, let's talk Whirlpool. Horrible quarter. Clearly business is terrible. Who is among WHR's largest clients? Sears. The stock should be down big, it's too much of their business not to be down big. But how is it doing? Sears is ramping. Why? It is a retailer. We buy early-cycle retailers when things get better.

Now, you would say, "Jim, Black & Decker (BDK - commentary - Cramer's Take) is up, and Sears does hand tools. How about that?" To which I say, Newell Rubbermaid (NWL - commentary - Cramer's Take) is worse, and that offsets any positives in Black & Decker. Plus, Sears is a play on home sales, and those are the worst in 17 years.

What do you do with this kind of dichotomy? Frankly, it's such a nightmare to ferret out that I would just as soon be a blanket seller of ALL retailers into this strength, betting that people will remember the bad tomorrow, and forget the good.

Still, though, I say the worst is over for retail. Consider the so-called horrible quarter from Bed Bath & Beyond (BBBY - commentary - Cramer's Take). You have caught an almost 20% move from when it reported the horrible quarter. That's bottom stuff in action.

So, why be negative if there is a bottom? For the same reason I was negative about Merrill (MER - commentary - Cramer's Take) in a previous piece: In the end, I care about earnings power. Normalized earnings power and cyclical earnings power. And I don't think the retailers have it. You have to presume a crash in oil, much more easy credit, a return to home equity loans and actual job growth. You get those, plus home price stabilization, and I will jump on the bandwagon, too. But can I at least wait until one of them happens before I do what the buyers are doing today?

Random musings: Merck's (MCK - commentary - Cramer's Take) now hunky dory? How crazy is that. I like Merck very much, but there is nothing amazing here about its drug approval. More dysfunction. ... It is taking many days to get over the stupid sell down to $33 for AT&T (T - commentary - Cramer's Take). But it is happening. ... EMC (EMC - commentary - Cramer's Take) now virtually unchanged after its great quarter and VMware's (VMW - commentary - Cramer's Take) great quarter. Really being penalized for heaven knows what, perhaps that their stock failed to get a sustainable pop on the VMware deal, and now it looks mighty stupid, frankly, since the company doesn't want to do anything with it. ... Ford's (F - commentary - Cramer's Take) preferred is still better than common. The turn at Ford, like the one at Boeing (BA - commentary - Cramer's Take), could take years. ... T. Rowe Price (TROW - commentary - Cramer's Take) reminds me of ITT Educational (ESI - commentary - Cramer's Take) -- the whole group is shorted but some are good.

At the time of publication, Cramer was long EMC, Black & Decker and Sears.

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