The other economy continues to slog along, getting destroyed by overcapacity, price decreases and a massive glut in commodities.
I write this because right now, as you are thinking about what to do with your stocks, copywriters all over the country are ginning up stuff that will be read all day off this GDP number that got reported. The tenor of it will all be about how wrong the
was to loosen when it did, given that GDP was so strong. No doubt we will also have to hear repeated references to how the Fed must now tighten because of this number.
All of this blather will be painful for me, because I have now sat through a dozen basic-industry conference calls in the last 48 hours and nobody's making a dime out there away from tech and drugs. In fact, company after company in the chemicals and paper and steel and copper industries are telling the Street to lower numbers, particularly if Brazil keeps going south.
How do we reconcile the GDP growth with what these manufacturing companies are telling us? Pretty simple: Worldwide deflation seems, at last, to be able to co-exist with strong growth. The textbooks we all grew up on, that Ec 10 course I took with
, you know, the one with that big
textbook, simply don't work anymore. Growth without inflation, indeed, growth with deflation, is the norm.
Before you lambaste me with "new era" thinking, get on some of these conference calls. I am on one now for
, which I am long, and I am listening to someone who has spent 30 years in the business talk about how the world has changed and, that despite great GDP growth, neither commodity nor
companies can participate. Whether it be Asia or Latin America, massive overcapacity coupled with terrific productivity have coalesced to ruin gross margins despite higher revenue.
So, when you hear the Fed needs to tighten stuff, remember, journalists have to craft a story of the day. This one is fairly easy to do. It will lose you money if you pay too much attention to it though. And that, not cynical judgments about how inflation has to be around the corner and a Fed is blind to it, is what matters.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At the time of publication the fund was long Eastman Chemical, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. 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 invites you to comment on his column by sending an email to firstname.lastname@example.org.