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NEW YORK (
) -- If you are like me, you tire of knowing you are going to be down big because Germany's down 3% or France is down 2.5%. It takes any joy or hope out of the game. We know that we are less important than they are, and we can't just decide that because claims are better than expected by a couple of thousand that we are now free to trade on American news.
There are several debilitating aspects of this business right now that have simply made stocks unpalatable -- justifiably -- to everyday investors.
First, the machines are totally in charge, whether they are using sophisticated arbitrage between ETFs and the S&P as the alleged criminal trader at UBS was doing, or whether they are simply keying off levels that are triggered by the futures themselves.
Second, the only thing that keeps you from being annihilated on a daily basis is yield, yet so many of the strategists still don't get the value of yield. If they did, you wouldn't get repeated downgrades of stocks like
, which was done yesterday ... again.
Third, valuation is meaningless. From the trajectory, we all now figure that
Freeport McMoRan Copper & Gold
has to go back to $17 as copper will fall through the $3 floor and the hedge funds will give it up and the dividend will get cut. There is no recognition that this time FCX might be better. That's just being "silly."
Fourth, once a stock is broken, it doesn't just stay broken -- it accelerates. That's what is happening with a
. Maybe Netflix with its 20 million subscribers isn't worth $12 billion. But it is only worth $5 billion? Do we really think this is just America Online -- the first version -- where these subs are all dial-up?
Fifth, even though we now are beginning to believe Tim Geithner when he says there will be no Lehmans, we also recognize that there are a ton of things short of Lehman that will make it so Europe can be down big again and again. Jamie Dimon's angry at the capitalization rules implied by Basel because he's playing by serious stress test rules set up by Geithner. But Europe's stress tests were phony. Many of those banks would have been closed, merged or quasi-nationalized a la
if they had played by our national rules. Somehow they will skate under Basel and our banks won't. He's right.
Finally, we will not be able to recover quickly from Europe simply because the machines won't let us, as we aren't strong enough to defy the prevailing headwinds. Other than a couple of outlying tech companies, we haven't seen a company miss because of Europe. But it doesn't matter at all. Our bank exposure is minimal. Doesn't matter at all. Nobody can put to rest, for example, the capital stress of
even though it is hedged across the board against Europe. But who wants to be the one who says, "Your money is safe in Bear Stearns," as I did, and then suffer national humiliation? Better to ask, "Is it safe?" a la Laurence Olivier in "Marathon Man" then pronounce it safe, especially when you are really only talking about the deposit, not the stock. Meaningless. The lesson, alas, of me, is to question the Morgan Stanleys, not say you can keep your money there.
So, we sit and we take a beating. It is our new lot in life. It is NOT going to change by any means. Europe is in a terrible bear market and it is pulling all but our highest yielders and most recession-proof stocks into it, and even the latter are now so extended that it is difficult to get behind them unless they yield more than 3%.
Worse, the oil price they have -- the only thing that holds up -- is now our oil price, even though it shouldn't be because we are awash in oil. The only thing they are exporting is inflation, and their oil price should be as low as ours as they claim to be green as all get-out and don't need it. Their protestations are as bogus as their assurances that their banks are fine. So our oil stocks trade off of West Texas Intermediate but we pay Brent at the pump. That's a horrendous and toxic combination.
Do not think for one minute we can break the linkage. Accept the linkage. It is too powerful. Do not think we can escape the linkage when Europe closes because by the end of the day, the hedge funds have to set up for a European collapse.
Just embrace it. Set up for it. Profit from it by being long stock yield and short non-stock yield. By being long the Dow and short the S&P if you want a simple way to play it.
There's nothing else to it right now. It's all Europe all of the time, and those who think it isn't had better own a plethora of high-yielding utilities, real estate investment trusts and master limited partnerships if you don't want to short the S&P. They don't trade with Europe and they aren't that much exposed to the indices.
Other than that, be prepared to take your daily European beating. You don't deserve, it but "deserve" has nothing to do with it.
At the time of publication, Cramer was long FCX, though positions can change at any time.