Defining Week for Retail; Paying the Piper: Cramer's Best Blogs

NEW YORK ( TheStreet) -- 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:
  • settling the big retail debate; and
  • paying the piper

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.

Retail Faces Defining Week

Posted at 6:23 a.m. EDT on Friday, Aug. 16

The biggest debate in retail will be solved next week. Right now, there's a definitive split out there.

The stock intelligentsia believes that the public is still spending, but only on the house, not the body. In other words, apparel's weak, much weaker, but home goods are strong. The debate gets settled next week when Home Depot ( HD) and Lowe's ( LOW) report.

I have to tell you that I am truly worried about retail here. Our country seems, overnight, to have become a nation of savers. The borrowings are way down and the money's not being spent at the mall. People seem to be hunkering down at precisely the moment they shouldn't be, when jobs are coming back.

There are two explanations. One is that Washington wrecked things with the taxes and the sequester and people are feeling it, especially when the tax of higher gasoline is upon us. Another is that they are still spending, but they are spending it on their homes now that homes are going up in value. Anyone who has been on a Home Depot call knows that home spending has been below average for years and years now. Maybe that's changing.

But if it isn't, look out below. That's why the risk-reward on retail's so daunting here. If Home Depot and Lowe's say good things, then we know they are spending, but not spending at traditional mall-based stores, so there may be no reason for traditional retailers to rally. But if they aren't spending on the home and that's cooled too, I have no doubt in my mind that all of retail takes a hit down to levels where the stocks represent better bargains than they do now.

Home Depot, at 20x earnings, could easily trade down to $70 if it doesn't have a pretty darned good quarter. So could Wal-Mart ( WMT) if that happens.

This group, to me, is in trouble. It's ridden the refinance and housing boom for ages. Those are over. These stocks will not be bailed out by an improving Europe or Asia. They will only be hurt by Washington when the summer's over.

Puts anyone?

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.

The Piper Is Being Paid

Posted at 11:57 a.m. EDT on Thursday, Aug. 15

You don't want rates to climb at the same time earnings are coming down. You want rates to climb because earnings are going higher. You don't want the consumer spending less and the 10-year note going to 3%. You want consumers spending more and the 10-year going to 3%.

So what we have right now is a combination that should, unfortunately, if you are a bull, take us down to let's say 1643 on the S&P 500, give or take a point (thank you Matt Horween for your levels.)

It's too difficult to shrug off both Cisco ( CSCO) and Wal-Mart ( WMT) on the same day. I can excuse Cisco, as I did earlier, by simply pointing out that there really is no big guide-down and plenty was robust. Wal-Mart's tougher, especially in light of Macy's ( M) miss yesterday. You can't have the biggest department store miss and the largest retailer in the world miss and not think that the boogeymen of higher taxes, higher gasoline prices, unemployment insurance, rising rates, furloughs and the sequester aren't at last dinging the strong consumer.

We know the housing stocks have been clocked despite incredible -- and ridiculously high -- homebuilder sentiment, the strongest since 2005. Boy is that worrisome. We also know that auto sales simply can't be as robust as they have been with higher rates and lower disposable income. Where is the leadership going to come from? I can't find any to speak of. Very worrisome.

The piper's being paid.

The macro numbers, like weekly claims, justify the higher rates even as we can't find enough business activity at the enterprise or micro level to justify paying higher price-to-earnings ratios for stocks. Higher rates mean lower PEs, and that means the PEs for the market are too stretched.

So, here's what has to happen.

First, stock prices come down. I mentioned 1643 on the S&P 500, but maybe it goes down as low as 1610 if the 10-year keeps going higher (the iShares Barclays 20+ Year Treasury Bond Fund ( TLT) still looks like a short to me).

Second, expectations come down. That's what's happening now, a real ratcheting lower of estimates.

Third, when that process is completed, rates should stop going higher and better reflect the slowing economy.

Fourth, internationally oriented stocks do better because Asia and Europe are getting better, not worse. So, they are the places to go into the weakness. Those and the stocks that have little cyclical exposure that have come down enough -- like ConAgra ( CAG), PepsiCo ( PEP), Kimberly-Clark ( KMB), Johnson & Johnson ( JNJ), Clorox ( CLX) and Colgate-Palmolive ( CL) -- will become buys.

This process might be more gradual than today's prices indicate, if only because a lot of money is still on the sidelines and a lot of hedge funds need to catch up. But it is the odds-on scenario, and it must be prepared for.

That doesn't mean it can't switch on a dime. We saw rates top out and we had a terrific equities rally after they did. However, we now know that estimates are too high for the companies reporting now, and that means we will even give a haircut to companies that reported good numbers as recently as a month ago.

Action Alerts PLUS has an extremely high cash position. We are looking to redeploy in precisely the multinational kinds of companies mentioned above. We don't have to sell to do so.

But if you don't own the "right" stocks, you need the bounce this market keeps giving you to reconfigure, unless you can take some pain while expectations and earnings estimates and valuations are ratcheted down to what can only be called more "realistic" levels.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long CSCO.

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