Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- the Obama drag;
- discounting the negatives; and
- browsing at the CANDIES shop.
The Obama Drag
Posted at 9:43 a.m. EDT, Monday, June 28 Are stocks too cheap? In the last 72 hours I have read a huge number of articles posing that question -- including the lead article in USA Today. The idea and thrust behind all of them is the same: Stocks have fallen too far vs. the fundamentals, and the S&P 500 at 12.7 times earnings is just too low vs. the five-year average of 14.2. I discount these articles. I question their worth. Because I have rarely made any money based on valuations, short or long. There's a very firm and obvious reason the multiples are going down, and it is not earnings revisions. It is not that earnings are falling apart, the "E" part of the equation. It is the "M" -- what we pay for those earnings. We don't want to pay up. We want to pay down. Why? Because there's no employment growth and, more important, there is a fear -- a palpable and justifiable fear -- that earnings will be crimped by Washington. I think this shrinking "M" is all about a grudging recognition that you can't afford to pay up for earnings when earnings may be under attack or wiped out by the Obama agenda, and that your share of the profits in terms of capital gains and dividends will be taxed to the point where you should pay less. > > Bull or Bear? Vote in Our Poll Think about it. It is almost impossible to find a company that does not have earnings threatened by the agenda. Banks just got earnings cut pretty severely off finreg. Health care had the same cuts a few months ago, although obviously the true price-cutters, AmerisourceBergen ( ABC), McKesson ( MCK) and Express Scripts ( ESRX) are winners. Even the generics have been losing lately, but that might be because they ran so much because of health care reform but then got hurt by currency. Cap-and-trade and Card Check will hurt the industrials and the retailers ... and the banks again. All industries that pollute -- pretty much everyone -- as well as all utilities will get hurt by cap-and-trade, which Rahm Emmanuel has made very clear will pass this year. Given that Obama's on a roll, that has to be viewed as likely. At every point Obama has stressed the need for workers to do better, so we have to believe the easiest way to make that happen is to have Wal-Mart ( WMT) and the banks unionized. You need to see Bank of America ( BAC), JPMorgan ( JPM) and Wells Fargo ( WFC) tellers unionized, and the easiest way to do that is to ease the rules on the ability to have elections that go the unions' way. That's Card Check. The ban on drilling will crush the oil service companies and the oil companies that needed the new oil to keep their reserves up. Natural gas will be hurt by the EPA investigations. That's why the multiples on Exxon ( XOM) and Chevron ( CVX) and Chesapeake ( CHK) and Schlumberger ( SLB) are shrinking. The stimulus has largely benefitted the state and local governments, which don't move the needle. Some companies can transcend it. I have emphasized them endlessly, notably the
Discounting the Negatives
Posted at 12:48 p.m. EDT, Tuesday, June 29 Here's what the market is saying. I hear it loud and clear:
- If you don't have a job, you won't get one. The jobs market is moribund because we have no demand to meet, so what's the point of hiring? Plus, how much does it cost to hire in the new world?
- There will be no lending. Banks are trying to figure out what they are allowed to do and not do and how much capital they have to hold in reserve. Good time to tell the lenders not to lend.
- There will never be another house bought. The only reason anybody bought a house was because of an $8,000 tax credit. They aren't interested in 4.5% mortgages even though they save you a lot more money than the tax credit.
- We will never build another house again. Why bother? No tax credit, no jobs.
- We will never buy another car. Who can afford it? Why make them?
- We will never export anything to China ever again. That's what its leading indicators are saying.
- We will never use energy in the quantities we used to. That's what the low prices of energy are saying.
- We have a government that wants everyone to join a union and wants stock prices lower.
- We will never go out to dinner again, or even buy a cup of coffee.
- Tech is finished. Done.
- We have actually had job claims go down in recent weeks, and if we put together a stimulus based on how horrible the economy is, we can reverse this. It is reversible. We also know that overtime is running high. So it can flip.
- Banks want to lend, they just need some small businesses to lend to and some guarantees to those businesses. The government can provide them.
- There is huge pent-up demand for housing simply because household formation continues apace and there is demand, innate demand, for living space. The buying could start because mortgage rates are dropping to unheard-of levels.
- We are building fewer homes than when we had half the number of people we have in this country now. That's not sustainable. Clearly not sustainable, especially with a decline in the inventory of homes. The Case-Shiller index that we saw today may have been inflated by the tax credit, but it's up substantially from a year ago and I don't think will slip that much because so few new homes are being built.
- Car sales are going very well. We just heard that from Carmax (KMX) last week. Just last week. It can't change that fast. Plus, none of the auto companies are furloughing or discounting, so why should we think that sales are horrible?
- We got ONE bad number out of China. Do we really think the government would allow the yuan to appreciate if things were really bad? And people are selling stocks to have money to buy the biggest deal of all time, the Agricultural Bank deal. That's the reason for the decline. Does anyone think the Chinese government doesn't know these indicator numbers ahead of time? And how many times do we have to say that they are cooling the property market and it is a positive, which is what produced the bad indicators?
- Energy demand is running well in excess of last year. Coal inventories are down. Natural gas has had a big run. Oil's barely down.
- Midterm elections are coming. Unless the Democrats are totally suicidal they will go with stimulus and create jobs and do what's right to reverse rampant deflation, as exhibited by the 10-year Treasury being under 3%.
- Darden (DRI) actually said things are trending better, not worse, when it spoke last week. They are the ultimate indicator of dining out.
- If tech is finished, done, how do you account for the biggest sales of computer and computer-related products in history out of Apple (AAPL)?
Start Browsing at the CANDIES Shop
Posted at 9:50 a.m. EDT, Wednesday, June 30 This is the CANDIES moment. I am getting a lot of questions from many places -- email, Twitter, the coffee cart -- whether this is the moment to buy the Chipotle ( CMG), Apple ( AAPL), Netflix ( NFLX), Deckers ( DECK), Intuitive Surgical ( ISRG), Express Scripts ( ESRX) and Salesforce.com ( CRM) stocks? The answer? This is PRECISELY when you buy them, and you do it with deep-in-the-money calls. In the October time frame. Why? Very simple. These are the stocks that snap back fastest when the market comes back, and these companies do not need broad U.S. growth to grow their earnings. Of course, every day there are niggling comments that say my thesis is wrong. Today someone's saying Hulu's charging is going to nick Netflix. OK, I will believe it when I see it. Apple? Usual worries about something with the new introductions that won't mean a hill of beans. I am recommending a half position of October deep-in-the-moneys, with more to be added if it gets hit. I am sure there is someone who wants to read something into Deckers' drop yesterday -- cotton prices going up? My checks say nothing's changed. Morgan Stanley says today that Salesforce.com channel checks indicate an ACCELERATION in sales. You buy these stocks into the weakness. You buy them with calls. You buy them now for the snapback that takes them to highs, as it has during all of these selloffs. This time will be no different and will stay no different until the fundamentals change ... and I am not seeing any degradation for any of them. Random musings: Needless to say, if Verizon ( VZ) is getting the iPhone, it is great for Skyworks ( SWKS) -- as Bryan Ashenberg reminds in his Breakout Stocks newsletter -- but also remember Arm Holdings ( ARMH), SanDisk ( SNDK) and Cirrus Logic ( CRUS). At the time of publication, Cramer was long Apple.