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:
- Why even good news in the markets can't lift the mood on Wall Street lately.
- Why he's not jumping on the junk bond bandwagon.
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Here's Why the Market Feels so Sad Right Now
Posted on Dec. 14 at 3:56 a.m. ET
Why does the market always feel so bad these days? And what makes it feel like that even when it rallies?
Some of it is because all we ever do is look at stocks through the eyes of what will happen with the Federal Reserve. Every day we guess what the Fed will do and every day we have new information that makes the guessing game harder.
For example, we know that employment has been very strong. The Fed's focused on job growth and it's getting it. So there's no reason to keep short-term interest rates too low if that's your prism.
But if your worldview is colored by how companies are doing, raising rates would be the last thing you would do. I can't name an industry group that's doing better than it was six months ago. I know you could therefore say that the Fed missed the window. That's not true, though, if you think employment matters all that much because it wasn't as good then as it is now. They haven't missed anything.
Still, the stock market's rough because anyone who follows individual sectors knows that things just aren't so hot. That's not a technical term. It's a term that explains where the economy is. That's where the confusion comes in. How can a cooling economy produce more jobs? I think the answer is simple: Jobs are in the rear-view mirror. The businesses I am looking at now will be laying off more people than they are hiring at this pace.
That's why everyone will be focused on the statement that the Fed issues Wednesday. If it is cognizant of the weakness in sectors and recognizes that employment is a lagging indicator, then it says it is going to take its darned time until the next rate hike. That won't stop the jackals from nipping. But it would take the next few months off the table for this parlor game, which could cause a relief Christmas rally beginning Wednesday afternoon.
That's only part of the reason why the market seems so disappointing. The other? The numbers themselves. Like you, I like to read James "Rev Shark" DePorre each day on Real Money, the subscription site of TheStreet. He made a terrific point Sunday night, which I will quote:
"The action has been far worse than it has appeared. It has been an extremely narrow market and that that fact has been covered up by the focus on major indices."
How narrow? Get this: The top 10 stocks in the S&P 500 are up an average of 20%. The remaining 400 stocks, Rev Shark points out, are down an average of 3%. Stunning, right? Further, only 23% of stocks are trading above their 200-day moving average. The importance of that statistic? It means most stocks are losing your money and have been for some time. The saving grace, says Rev Shark, is the divergence with the vast bulk of stocks doing poorly that has been going on since July 2014. The concern is that he believes the stocks in the major indices and the ones that are up 20% have to come back to earth before there can be a serious advance. Rev Shark has a firm view, and it's based in a lot of reality.
I don't want to be that negative. That's because if the Fed gives the right statement, then we will most likely be a coiled spring and there will be tremendous regret if you decide to dump the winners in advance of a benign admonition come Wednesday afternoon. But to be all that positive knowing that a few stocks are responsible for so much of the advance? That doesn't seem right, either.
I could tell that the caution I expressed last week was very poorly perceived by reading my Twitter feed. I got repeated blasts that if Cramer doesn't like it, then it is time to buy. But given that I liked a lot of stocks until the big Labor Department employment number put a nail into the coffin of lower rates, I have to come back to the naysayers and ask: Did you bet against me all the way up? I guess so.
How about the concentrated stocks? The difficult thing about selling them is that they have tremendous scarcity value. What's the scarcity based on? The simple fact that unlike so many stocks in so many groups, these companies -- and I am speaking of the likes of Facebook (FB) - Get Report , Amazon (AMZN) - Get Report , Netflix (NFLX) - Get Report , Alphabet (GOOGL) - Get Report , General Electric (GE) - Get Report , Nike (NKE) - Get Report and Starbucks (SBUX) - Get Report , big contributors all -- are truly doing better than they were six months ago. It is self-fulfilling. They are going higher because there are so few companies that merit being valued at higher levels than they were earlier in the year.
What else makes me less negative? I know that the market has collectively pronounced the Dow (DOW) - Get Report -DuPont (DD) - Get Report deal last week and the Jarden (JAH) - Newell Rubbermaid (NWL) - Get Report deal today and the Marriott (MAR) - Get Report - Starwood (HOT) and Pfizer (PFE) - Get Report - Allergan (AGN) - Get Report deals a few weeks ago as total stinkers -- value destroyers, when it comes down to it. I don't look at it that way. These combinations will ultimately yield higher prices -- just not yet.
Balanced against the combined forces of some stocks doing really well and of some managements motivated to get their stocks higher is the gravitational pull of news flow that brings so many stocks down. The politics of the moment are grim. Global growth's almost nil, with China, excluding the consumer, slowing at a worrisome pace. Much of South America is a disaster. Canada and Mexico? Terrible. Europe and Japan are of no help whatsoever. Many of our one-time favorites, like Apple (AAPL) - Get Report , or the semiconductors that go into their products, or the rails and the airlines, the biotechs, retailers and housing plays and, of course, anything oil, have stalled at best or nosedived. Plus, we have this new junk bond credit crisis that's getting worse before it gets better for the uninformed retail investor who bought mutual funds filled with the worst kind of bonds betting, somehow, that diversification would yield safety and easy redemptions. Wrong!
All of these have combined to make it so that when the market does rally as it has today, it can't maintain any momentum once it is no longer oversold as it was coming into today.
So, the market feels bad because many of the companies aren't doing that well and their stocks are reflecting those newfound, more negative prospects. The few with positive prospects have stocks that seem unsustainably high. If you aren't at least a tad cautious in this environment, then you are either arrogant, clueless or both.
Beware of Debt Merchants Bearing Gifts
Posted on Dec. 16 at 5:47 a.m. ET
Are we really supposed to believe that junk bonds are now the cheapest they have been in ages, as I have read in article after article since the crisis began last week? Are we supposed to accept that perceived wisdom?
Having been knee-deep in exploring funds that own this paper, I come back and say that the classes of junk are so bifurcated that the notion of "cheapness" is ludicrous. There's some health care and consumer junk paper connected with companies that haven't been able to IPO because of the weak market for new deals. That paper does, in some cases, seem cheap relative to what could happen if the companies can come public.
There's lots of debt connected to retailers that went private in the last four years and you could argue that it is underpriced if the consumer were to get stronger or the job market get even better than it is. The ones I have looked at, though, are mall-based, and frankly, I have no real conviction.
But the vast majority of distressed paper revolves around minerals, mining, steel, iron, coal, oil drilling, oil service, natural gas and oil. So much has to go right for these debt instruments to be revived, that I can only imagine a very rough battle against the elements from the moment you buy these goods. In fact, I think that the moment they come off the proverbial lot, so to speak, they are worth less than you paid for them, because you may be the only sucker out there who will buy the stuff.
There's massive amounts of coal debt that trades. I think coal is finished in this country, and while I know that 35% of our energy comes from coal plants and it is not slated to go down much over the next 10 years, I think the estimates are way too high. I wouldn't touch it for all the tea in China.
To buy the metals and mining and steel debt is to believe that China's going to come roaring back some time soon. I don't see it that way. I think that the Chinese Communist Party isn't encouraging infrastructure the way I thought it would by now, and the Baltic Freight index under 500 is pretty ugly statement in itself for those looking to bottom fish.
And then there's oil and gas. Natural gas just took out a 17-year low, but I have to tell you, I have no idea why it can't go much lower. There's no place to put the stuff and we flare more than we use. Natural gas hangs out at $1.82 right now, but there's plenty that only costs about a dollar per million btus to bring up. That makes it almost inconceivable that the price can hold. The balance sheets for many of these companies simply can't stand for anything under $2. It's where the real stress is.
So, sure, pundits keep chattering about how junk is cheap, just like they chattered about how emerging market debt is cheap. All I can say is that the people who claim it's cheap tend to have one thing in common: they have some to sell to you.
Beware of debt merchants bearing gifts, especially when no one wants to show the true prices at the end of the year.
At the time of publication, Jim Cramer's charitable trust Action Alerts PLUS, was long AAPL, DOW, AGN, HOT, GOOGL, FB, SBUX and TWTR.