NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- The strong employment/low inflation playbook, and
- Jamie Dimon's health scare.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
No Use Working Against the Odds
Posted at 11:10 a.m. EST on Thursday, July 3, 2014
There are playbooks in this business the way there are playbooks in the NFL. When you are third and inches, you just might want to run the ball. When you are third and 10, you just might want to pass it.
When you get a strong employment number with low inflation, you just might want to own consumer cyclicals with good leverage from top-line growth. You might want to sell some of the strong utilities that don't have a lot of growth.
Now, you can pass on third and inches. There might be a big opening for a 10-year run when you are third and nine. Sometimes you can catch the defense off-guard. But the playbook
says you shouldn't do it because the percentages are against you.
My recommendations today are to sell some of the fixed income that so many are in, including the junk bonds, and to move into some equities that have exposure to broad economic growth or an expansion of net interest margin -- e.g., the banks. These recommendations are based on that exact same kind of reasoning.
Alternatively, let's go to blackjack. When the dealer has a 16, you are usually sitting pretty, because he or she is likely to bust. Sure, if you count cards and know there are no face cards left, you may have to take a card on a 14. But that's like sticking with the utes at these levels. It can win, but it historically has not.
Or let's do baseball. Why do most players not
get the green light in a 3-0 situation? Because, historically, it hasn't been a winning strategy. There are times, special situations, where you get green-lighted. We feel green-lighted to own Johnson & Johnson (JNJ)
, which is a total 3-0 swing situation.
But the playbook should be obeyed, and the playbook says to go for more leverage to domestic and worldwide growth after this employment number. I spent a whole chapter in Get Rich Carefully
going over this exact playbook after truly exhaustive research about what has worked most of the time, and what hasn't.
Sadly, due to the democratization of critics, on places like Twitter these moments are all but impossible to reason with. That's because my view is being considered to be "leading lambs to slaughter, high momentum come in at the highs" illogic. What I am trying to do is get people out of what has traditionally slaughtered investors at these fulcrum levels, and to get them into what historically has worked, provided the fundamentals at the individual company are good.
Could I be wrong? I think a better way to look at it is to say, "If I play the odds, can I be wrong?" The answer is, that's always a possibility. But it is a lower-probability possibility, and not a "strategy," so to speak. If your strategy is to hit on 17 when the dealer has a 16 and you have drawn nothing but fours and threes and twos, I say, fantastic. You stick with that strategy. I want you to win. I want everyone to win. That's why I focus on the unemotional probabilities, as they win more often than not.
It simply isn't guesswork.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JNJ.
Don't Overreact to Dimon's Health Scare
Posted at 11:24 a.m. EST on Wednesday, July 2, 2014
Jamie Dimon is a revered banker, mostly because JPMorgan Chase (JPM)
made a lot of right moves in the last few years, chiefly building up a fortress balance sheet that shielded the company from the big losses that so many other banks have taken. That's why the sad news that he has throat cancer is causing the stock of this Action Alerts PLUS
name to get hit today.
Should the stock be bought into the weakness?
First, you have to understand that when a company issues a release saying a CEO has cancer but it is curable cancer, and curable in a relatively short period, as is the case here, it is not a reason for selling.
That's because no executive wants to make a positive prognosis about such a horrible disease unless the doctors have given a huge amount of assurance that things will turn out well in the end. The stakes are too high, even for banks, which have a very tarnished reputation when it comes to veracity.
Second, and more important for stock-pickers, there have been three times that stand out when a noteworthy CEO has had to be treated for curable forms of cancer: the 1995 admission from Intel's (INTC)
then-CEO, Andy Grove, the 2010 statement from Bob Benmosche, CEO of American International Group (AIG)
and the 2012 announcement from Warren Buffett at Berkshire Hathaway (BRK.B)
All three situations proved to be buying opportunities. Intel, which was admittedly in the midst of one of the great '86 microprocessing cycles, doubled in the year after Grove got sick and then returned. Within a month, AIG and Berkshire Hathaway were both higher after the tough news each company released. The companies were true to their word, and all three came back in short order to lead their companies to further success.
Now not to be too grisly, but just playing it ultra-safe, JPMorgan does have a strong bench of executives underneath Dimon, including Gordon Smith, the excellent head of the highly successful consumer bank, and, perhaps, ultimately, Matt Zames, the 43-year-old chief operating officer, although he's a little young to be thought of in in the successor role right now.
No bank runs itself. JPMorgan has had a fairly sterling reputation among banks, but it hasn't all been roses under Dimon, including the "London whale" incident that led to a multibillion charge and the gigantic $13 billion hit to earnings that Dimon agreed to pay the government for past transgressions. The last quarter itself was nothing to write home about either -- it was one of the weaker in the group.
All that said, this is a quality franchise with a stock that has gotten very cheap compared with the overall market. I think it is, in the end, a proxy, not so much for Dimon's management but for the U.S. and world economy, which I think is improving. That means, to me, that it is a buy on any material weakness on this difficult news.
Tough to say "buying opportunity on curable cancer," but if history be the judge, it should be.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long JPM.