If the Federal Reserve doesn't change course soon, we could be headed for another downturn, Jim Cramer warned his Mad Money viewers Monday. The market's current weakness has all of the earmarks of past downturns, he said, as well as some that we've never seen before.
In October of 1987, the machines failed to function and the market ground to a halt, Cramer recalled. In today's market, those machines have been replaced with algorithms and no one really knows what they'll do next.
In the crash of 1998, a firm called Long-Term Capital imploded, causing days of forced selling, much like the markets experienced last week. A year later, in 1999, the Fed once again indicated that interest rates were headed higher, but days later changed course, something Cramer said the Fed does again in today's market.
In the dot-com collapse of 2000, tech stocks were wildly overvalued and crashed back to Earth in spectacular fashion. Today's market has some of that tech revaluation, but today's prices are nowhere near the levels they were in 2000.
The last big market decline was in 2008, when again a tone-deaf Fed opted to hike interest rates, ignoring all of the warning signs. Cramer said he hopes the Fed does not take this route again, and sees the current weakness in housing, autos, oil, paper and other commodities.
While we don't have systemic risk today as we had in 2008, the signs of a cyclical downturn are visible in plain sight.
But what is perhaps scariest of all are tariffs, Cramer concluded. The markets have never seen anything like our current trade war, he said, and that should give the Fed pause, as Trump's continued tariffs have likely already had the same effects as all of Jay Powell's promised rate hikes for all of next year.
Over on Real Money, Cramer talks about what could happen if the Fed doesn't change its course. Get more of his insights with a free trial subscription to Real Money.
What's Worse: Tariffs or the Fed?
With a president and a Federal Reserve that seem incapable of changing their minds, things aren't looking good for stocks, Cramer admitted. But which is worse for the market, more tariffs or higher interest rates?
Cramer said today's market was cruising along just fine before news broke that President Trump plans on slapping tariffs on all Chinese goods if the next round of talks doesn't yield results.
Meanwhile, we heard more hard-line chatter from the Fed on Friday that the current market weakness will not factor into their interest rate decisions.
Cramer said it's clear that both the Trump and the Fed are focused on their goals and both are bad for Wall Street, especially in combination. The market's reaction to these threats are perfectly rational, he said, as there is seemingly no place to hide.
The good news, if you can call it that, is that both of these situations are man-made and are easily reversible. We can only hope that one or the other (preferably both) change their minds soon.
Executive Decision: Salesforce
In his "Executive Decision" segment, Cramer checked in with Mark Benioff, chairman and co-CEO of Salesforce (CRM) , to discuss Prop. C, a ballot initiative in San Francisco that would tax large companies, like Salesforce, to help address the city's homelessness problem.
Benioff said there's a crisis of homelessness in San Francisco and a great inequality. At a time when countless great companies, like Salesforce, have emerged, more than 7,500 people, including 1,200 families with children, are homeless in the city. He said the state of affairs is simply unacceptable.
Business can choose to be in business for themselves or be in business to improve the state of the world, Benioff added, and big companies like Salesforce can be a huge platform for change. That's why his company, among others, supports San Francisco's Prop. C.
Executive Decision: IBM
For another "Executive Decision" segment, Cramer sat down with Ginni Rometty, chairman, president and CEO of IBM (IBM) , and Jim Whitehurst, president and CEO of Red Hat (RHT) , to discuss today's announcement that IBM will be acquiring Red Hat. Shares of IBM fell 4% on the news, Red Hat soared 45%.
Rometty said that as companies move to the cloud, the first 20% was easy, but the remaining 80% will be a lot harder and that's where a combined IBM and Red Hat can help. IBM continues to reinvent itself, she said, and this acquisition is the latest disruption in the cloud computing landscape.
Whitehurst explained that Red Hat will stay Red Hat, helping clients grow on whatever cloud platform they choose. The acquisition is simply about scale, as IBM can help Red Hat get into corners of the enterprise that were inaccessible to them.
Rometty assured investors that IBM will continue to growth their dividend and they remain in a strong financial position, with $15 billion in cash and strong cash flows for the future. She said there is plenty of capital to fuel both organic growth and further acquisitions.
Cramer and the AAP team are trimming Kohl's (KSS) on strength. Find out what they're telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts PLUS.
Executive Decision: Columbia Sportswear
In another "Executive Decision" segment, Cramer checked back in with Tim Boyle, president and CEO of Columbia Sportswear (COLM) , a company that had the misfortune of reporting in the middle of last week's brutal selloff.
Boyle started off by saying that Columbia takes its obligations to its shareholders seriously and after 80 years in business, has a solid management team and board of directors capable of guiding the company through any environment. In the summer of 2017, Columbia stared a new initiate called Connect, which aims to streamline their global operations for optimal efficiency. Boyle said the returns from those initiatives are just starting now and will be full realized in 2019 and beyond.
When asked about the effects of tariffs on their business, Boyle said that tariffs have the potential to do significant damage to the U.S. economy. Only 30% of Columbia's sales are outside the U.S., but their products are sourced globally. Any barriers to trade will have an impact, especially on footwear and apparel, which already has high tariffs to begin with.
Regardless of tariffs, Boyle added that Columbia differentiates itself with innovation and a brand unlike any other. Cramer agreed, calling the company a modern technological apparel marvel.
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