The Tea Leaves Point to Lower Rates

Cramer looks to the drug stocks and others as a "tell" for the direction of interest rates.
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Oh boy, this one is going to just kill

Padinha

. Just lay him to waste. But that's okay, he was off Thursday! The stocks I follow that are tells for interest rates, the high-multiple drug and retail stocks, exploded.

If the pattern holds true, that means rates are going lower. Most people focus on the utilities as a sign of the direction of rates. Because other people follow the utes, I do too. But I don't regard them as the tell. (Remember, the "tell" is a card term -- go rent

House of Games

-- meaning to tip your hand inadvertently to your opponent.)

When I see

Home Depot

(HD) - Get Report

,

Lilly

(LLY) - Get Report

or

Gap

(GPS) - Get Report

ramping, that is usually a tell to me that the market is betting that the discount rate, the interest rate used to consider the future value of an earnings stream, is about to go down. (Another way to put this is that people pay higher multiples for earnings when rates go lower.) The multiple-expansion stocks, classic growers that tend to trade as much as a function of rates as they do their own growth rate, all signaled to me that rates are about to drop to 5%. Even

Coke

(KO) - Get Report

, a classic old-fashioned growth stock, showed some lift Thursday, I believe in response to a perceived decline in rates. (Why does the phrase "even the dog recoiled" come to mind when I write "even Coke rallied"?)

I know this is a subtle point. I mean, can you imagine a talking head going into tells and discussing which way rates may be leaning as a function of how the drug stocks trade? But I am trying to give you that feeling of what guys like me look at all day to measure the macro.

You know how Padinha gets these charts and graphs that show him data that might or might not lead to a tightening or higher rates. I love that stuff, but I am a stock guy and I look for patterns from stocks. (Again, following patterns makes you more money than it loses you, so I look for them.)

My conclusion? The economy is cooling and rates are going lower. Told you Padinha would hate this column.

Random musings:

Got more positive feedback from my Badlands

column than any other I have ever written. So guess what I am going to be rewriting on Saturday? ... Still trying to crack into that nifty dead-tree Kazakhstan venture between the

Journal

and

Izvestia

. LOL!

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Gap, although 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 at

letters@thestreet.com.