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:
- Building new thesis, and
- Strong CEOs who create value.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
We Have a Tolstoy Derivative
Posted at 1:40 p.m. EST on Friday, Aug. 8, 2014
Don't bother me, I am building a thesis, a new thesis to try to order a senseless world where barbarians are storming Iraq and Vladimir Putin seems determined not to bow to the West's demands.
Why is a new thesis necessary? Consider today. I got up at 3:30 a.m. to check out the overnights and the futures were down big, the equivalent of probably about 120 Dow points, but then we got a monster and shockingly positive reversal.
That turn got me thinking? What's going on here? How can we get that turn and how do we turn it into a game plan? First, we have to accept that we are now in a world of Friday rumor. You have to go back to 1990 after Iraq invaded Kuwait to find a pattern similar to the one we are getting ever since the game-changing downing of MH-17. Back then, after that invasion, we heard many times that then Secretary of State James Baker was always back-channeling with Saddam Hussein about a peaceful resolution to that invasion. Every Friday we would get a rally as short sellers, who were minting money, feared that a deal could be arrived at that weekend. Then, when there was none, the market fell hard on Monday. We've got a Tolstoy derivative going here, War and Peace Friday, except this time at least it is not a U.S. showdown, even as we seem to have adopted it as our own.
Now, if we go back to 1990, the invasion triggered a global slowdown not unlike the one we seem to be having right now, the one that's making the industrial stocks really difficult to own. The dip buyers have been getting their heads slammed trying this game, which has worked so well for ages and ages. But it will not work if the estimates are too high because, as I said last night, you can't get in front of number cuts in this market. You have to buy after them.
Nevertheless, we saw today that this rumor scenario does not extend to domestic companies. In what I regarded as an important development this week, we began to see some separation between the domestic companies and the international ones, with the domestic companies holding up rather well. Why is that? Because unlike 1990 when gasoline spiked off of Saddam's invasion, this time gasoline's coming down in part because the dollar's been strong and in part because many of the pipeline companies have been able to take Bakken oil and ship it to refineries in this country, causing some real price declines. Second, interest rates are going lower because our bond market has become a safe haven for the world. That and gasoline declines help boost purchasing power. Finally, not enough people are paying attention to these marvelous jobless claims, which are back to where they were in 2006. Remarkable.
All of this is good for retail, which will be instrumental in figuring out what's going to happen next week when all the major retailers report. I think this could be a terrific chance to get in long the best ahead of the quarter.
Doing the Right Thing?
Posted at 11:47 a.m. EST on Thursday, Aug. 7, 2014
do the right thing in not cutting its tax bill? Would it have been better just to take advantage of the law, a law that really and truly did support the notion that Walgreen could become a real foreign company after it closes its deal to swallow drugstore giant Alliance Boots
Did Time Warner
(TWX - Get Report)
do the right thing deciding not to engage with Twenty-First Century Fox
on its now withdrawn $85 a share bid?
spurning its shareholders' wishes by fighting off the $180 hostile bid from Valeant Pharmaceuticals
All three of these stories right now could be marking what some might regard as the high water mark of this current wave of mergers, acquisitions and inversions -- a wave that has caused a huge spur to the market and one it continues to need quite badly, especially in light of the new Russian headwinds.
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All three of these stories involve strong CEOs who have worked hard to create value. David Pyott, the CEO of Allergan, has worked mightily to create a research and development powerhouse, actually reaping profits from his industry-high science spending and growing faster than any other major old-line pharmaceutical.
Time Warner CEO Jeff Bewkes has done a remarkable job of creating amazing value out of an empire that was eviscerated by his predecessors. The company's true worth was just beginning to shine through when he spun off Time Inc.
, the once front-and-center but now vestigial print arm of the company.
Greg Wasson has taken Walgreen from a sleepy regional to a national story to a worldwide dynamo, with the Alliance Boots deal giving it unprecedented power in the tug-of-war against the drug companies. It will be the biggest buyer of medicines in the world, which means the best discounts for its customers.
I think Wasson will do whatever is right for shareholders and while some of the more aggressive short-term-oriented hedge funds wanted Wasson to invert Walgreen, I think Wasson was genuinely concerned that his company would become the poster child for negative financial engineering. It is true that he has a much better case than the other companies that have inverted, as the targets largely used Europe as a mail drop while Alliance Boots had $29 billion in sales overseas last year, but I don't think that the possibility of as much as 40% of the combined sales of the company coming from overseas would shield this company from the wrath of a President who, like Walgreen, is from Chicago. It's just too visible. I think Wasson did the right thing.
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Bewkes? I don't know. I think that the shareholders were entitled to a discussion with Fox to see how high Murdoch would go. I believe in Bewkes and his ability to create value long-term, if only because he has beaten the S&P three times over since his tenure began, but if Murdoch had been willing to pay $95, which is more than a third more than the stock was trading at before the bid, I think that merited a thorough analysis instead of a dismissal.
Allergan? I think that before Pyott revealed his more aggressive forecasts, it did seem that, no matter how reprehensible someone might find the twin predators of Bill Ackman and the research-light Valeant, it made sense to sell. Once we saw the bigger numbers, though, I am confident that Pyott will steer Allergan north of where the duo could take it. Still, though, thoughtful engagement was merited, and Allergan hasn't chosen that route.
In the end, it comes down to short-term versus long-term. Put simply, it doesn't matter what Bewkes, Pyott or Wasson ultimately did. The stocks ran up big on the inversion and bid stories. You have to exercise some responsibility yourself, as no one kept you from taking profits. You accepted the nuisance that the CEOs would reject these entreaties. Shame on you, not shame on them, if you didn't take them.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.