Bonds' Appeal Shows Stocks Are Overdone

Hard to believe that anything is a bargain in the common stock world, given the incredible selloffs in fixed income. I know from checking the fixed-income markets that it is, for example, impossible to buy Macy's (M - commentary - Cramer's Take) and far better to buy Macy's debt.

There are tons of situations like Macy's where the debt has been forced down because of fears of bankruptcy but also because of forced selling. That means, institutionally, that even if you believe in the equity, you could better be served buying the debt or another non-equity instrument, as anyone who owned Citigroup (C - commentary - Cramer's Take) preferred could have told you today. Ford (F - commentary - Cramer's Take) and General Motors (GM - commentary - Cramer's Take) also exhibit this dichotomy.

With the bonds trading at low levels implying bankruptcy, you have to believe that the new capital structure equity would be lucky to get warrants, unless you had a Citigroup program for Ford and GM. Interesting, but again, the bonds would do better than the common stock, as would the preferred.

So many common stocks are being pushed down also by debt holders or swap issuers who want to hedge themselves. Hard to imagine the stocks lifting as long as the debt isn't lifting. That's the story behind Jones Apparel (JNY - commentary - Cramer's Take), which the Street has given up on. It's the story behind the Goldman Sachs (GS - commentary - Cramer's Take) common, too, although the FDIC-backed debt it is issuing could clarify the situation and lead to a rally.

I am continually focused on employment and consumer spending, as is the bond market. If employment falls off, house price depreciation will continue, and we will get more defaults and less consumer spending. The bond negativity is deeply rooted in that concern, plus the leveraged buyouts of the last two years, which increasingly look like a joke. But there, too, with Neiman Marcus debt trading at 50 or Realogy debt trading at 16, the appeal is instant, even in bankruptcy.

In other words, I continue to think that some parts of this market are overdone.

At the time of publication, Cramer was long Goldman Sachs.

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