Cramer's Theory on Tech Resilience: Thank You Asset Allocators

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Did tech get saved by the bonds? As I watch my screen, tech hangs in like a rock. Of course, drugs and drillers do more than just hang, and I am in the absolute business of making money rather than the relative business of beating the tech-dominated hedge and mutual funds, so I still feel vindicated by this morning's bargain buying in my two favorite groups.

But how can we explain the strength of tech in the face of the downgrades?

First, tech got flattened yesterday, as you can see in the

piece I wrote last night describing the outrageous raids by the bears against the p.c. makers. The fast guys got out ahead of the downgrades, and the dumb guys shorted ahead of the downgrades and are now scrambling to cover. Good luck to you.

Now, however, I would like to advance a second, more radical theory. The incredible romp we are having in the bond market as I write is getting translated into massive buying of the S&P, courtesy of the asset allocators.

For newbies, that means giant institutions are selling bonds (as rates go down) to buy stocks, which represent a better long-term value than bonds at this point. This shuffling process involves billions of dollars in buying power and often overwhelms individual stock selection.

There was a time when traders like me would take stocks of big industrial companies when we saw buy programs kick in. When I saw bonds crash through 6.25%, I knew the asset allocators would be buying and I wanted to get in ahead of them.

But the stocks that dominate the programs now are not

Phelps Dodge

,

CSX

and

General Motors

. They are

Compaq

,

Dell

,

Microsoft

,

Cisco

and

Intel

, and the rest of the now massively capitalized tech biz. When bonds go up in price, these stocks get bought by asset allocators, because these stocks are now heavily overweighted in the S&P.

So if you are shorting tech stocks because of earnings risk, you get overwhelmed by giant programs. Their tidal wave literally forces you to cover, because the pain is too great for all but the most diehard bears.

How can you make money off this? Same as always. When the bonds are fabulissimo, as they are now, you get a tape that doesn't want to quit. In '87 we didn't have the bonds on our side. Now we do. That should blunt any vicious retest, and instead will make the selloff more benign. Either way, I want to buy.

The critical readers out there will say I got it Wrong! when I said I was avoiding tech. My take: I am telling you what I am doing. That doesn't make it right, it just makes it what I am doing. I don't want the controversy of East Asia, which is not going away. I want U.S. companies without earnings risk. That's why I stick by what I am doing.

Badmouth me for avoiding the tech carnage, but let me ask you, anybody else there giving you online updates/schematic of his mind? Let me know, I'll pay thousands of dollars for it.

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

Random Musings:

Don't forget the chat tonight on Yahoo! at 5 p.m. EST. It'll be at chat.yahoo.com. We'll have the log reprinted on Friday. See you there!

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. His fund has long positions in Cisco and Microsoft. 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

Jjc@Jjcramerco.com.