"I have not seen a market this difficult since 1994 ... and that's because right here, right now the 30-year Treasury has a yield that is lower than short-term rates," Jim Cramer told his
"RealMoney" radio show listeners on Friday.
That's called an inversion, and it has been a historical sign of an economic slowdown, he said. But Cramer said he would not completely change his attitude toward finding bull markets, but will give listeners new rules for this new environment.
"It doesn't mean no money will be made. It just means that making money will become much more difficult," he said.
In the previous inversions, when Cramer traded professionally, he said he had a bias to the short side, meaning that he bet much more against, rather than for, the market.
Textbook logic says that the market will go down in a recession because the slowdown hits earnings and what you pay for stocks in a recession is lower than in an expansion.
So, take a look at your portfolio, he said. If your stocks depend on the economy to do well to make your numbers, you're in for a tougher time.
More importantly, the main thing to avoid in these situations is illiquidity, Cramer said. You may be in good shape but your shareholders' neighbors might not be, and they can bring you down in a heartbeat.
Also, lots of small, speculative stocks won't survive an inversion.
"The market wants to humiliate us," Cramer said. "The market has been very unkind to the high-multiple stocks ... stocks like biotech stocks are going to cause a problem for us."
Recognizing these factors, Cramer said it's time to make positions smaller. For example, if you would normally buy 50 shares at the beginning to build a position, now buy 25 shares, he said.
Does that necessarily mean that things have to get bad? Absolutely not, he said. Cramer still likes oil stocks because they are not levered to the U.S. economy, but to the world economy. And he likes gold as a play on demand from China and India.
He said he wouldn't be aggressive until long-term rates are higher than short-term rates again, which would show that the
is going to catch us a break. But he said not to stay out until the inversion is all over because once the Fed realizes the error of its ways, you'll miss a market rally if you're not in the game.
When listeners stump Cramer with stocks he doesn't know, he can't give them a thumbs up or down until they are thoroughly vetted by Michael Comeau or Will Gabrielski, who write
Stocks Under $10 and
You're playing with fire if you buy the stocks before they are reviewed, he said, because most of the stocks offered by callers during the show's "Stump Cramer" segment have been really bad.
But Comeau, who joined Cramer to discuss the "Stump Cramer" stocks from
Thursday's show, told Cramer that listeners are making a little progress, citing Asian Internet play
( PCNTF) as an example.
He said that he wouldn't get behind the company because although it looks decent, it doesn't have enough growth.
However, about 35% of its market cap is in cash, Comeau said. The company reports earnings soon, and he said he would wait to examine the numbers to see if the company had generates cash flow before he would endorse it.
Comeau also said that adult entertainment play
looks interesting, but that the operator of strip clubs and porn Web sites is too small to endorse.
The company has a $19 million market cap and its expansion may be limited because of the business it specializes in.
Comeau recommended investment bank
as a breakout stock. He said it specializes in mergers and acquisitions, adding "it's like
without the trading desk, so it has a higher valuation."
He also said that
has become way too expensive and that he would sell it.
Cramer was bullish on:
Cramer was bearish on:
A listener told Cramer that her employer has changed her 401(k) plan four times in the five years that she's been at the company and her 7% contributions now go to a
Cramer said that "the clown who runs this company's 401(k) plan should be fired." That aside, he said that JP Morgan's funds are beyond mediocre and are not going to make her a lot of money.
He reiterated the fact that he made a mistake when he recommended
( LU). He said that he has been right more than he has been wrong when picking stocks, but that he takes the blame for Lucent and that he feels terrible about it.
, a caller asked what to do now that the stock was being crushed on rumors that it had lost a major customer.
Cramer said that he had said earlier in the week to sell the stock because of its giant run.
He told another caller that he was not endorsing picking up
as a trade before the quarter because "we are no longer in a situation when a good quarter will move a stock higher."
He said he was being more cautious and playing more defensively because of the yield-curve situation.
Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by
At the time of publication, Cramer was long Lucent.
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