Cramer Says Even Bulls Have to Worry Sometimes

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Bulls worry, too.

When I am bullish, as I am now, I do not put blinders on. I don't sit around complacently asking why others are worried when there is no reason to be concerned. I don't try to come up with rationalizations to stay bullish.

That's what fools do.

On any given day I am worried about the bullish thesis. Just to reiterate, to be bullish at Dow 7900 you have to believe that:

Inflation, including wage inflation, remains under control.

Earnings for the

S&P

companies will remain on track.

Money will continue to pour into the market.

The Fed is on your side.

The bond market stays not just benign, but positive.

The last point is the most important. The market by any stretch is overvalued based on current prospects. Heck, there is nothing wrong with that as the market represents the future earnings power of corporations and if progress stays on course, the market may not be overvalued depending upon expectations for out year earnings.

But the bond market represents the discount mechanism for what it is fair to pay for those future earnings. Or in English, if interest rates go down, we will be willing to pay more for those future prospects. But if they go up or even stay the same, we will not be willing to pay as much for the future.

That's why when you hear

Byron Wien

, the terrific Morgan Stanley Dean Witter strategist, say the market is 12% overvalued on the way to being 20% overvalued, as he did this week, you don't have to freak out if you believe that interest rates are going lower. You do, though, if you think they are going higher or even doing nothing.

That's what I worry about. So, when I hear that

Gap

had same-store sales that rose 16% in August, a chill runs down my spine. Maybe back-to-school is very strong, and interest rates are going higher. That would dovetail horribly with those strong

G.M.

numbers we just saw. But then I hear Smith Barney downgrading the capital goods makers and I think, whew, no way an economy is too strong if Tobias Levkovich takes his opinion down on these economically sensitive behemoths. Rates may be going lower.

Oops, unemployment claims aren't that high, cause for concern. But maybe they were skewed by UPS coming back to work -- sigh of relief.

Yes, if a schematic of my mind reminds you of a great U.S. Open volley, you are Right! As long as the ball keeps being returned and the match goes on, we are fine. Once I see an imbalance though, toward the "too strong" side, I pull the sell trigger. You should, too.

**************

Random musings:

Roger Lowenstein surprises to the upside with an excellent Magellan article in Thursday's

Wall Street Journal

. But

WSJ's

Business Bulletin seems old and tired to me. Like I had read it before. I would scuttle it for something more grabbing. Found myself reading the back of the Grape Nuts box this morning instead of it. Bad sign.

This story originally published Sept. 5, 1997.

James J. Cramer is manager of a hedge fund and co-chairman of

TheStreet.com

. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to

Jjcramerco@aol.com.