Jim Cramer: Rationality Creeps Back Into the Market

NEW YORK (Real Money) -- Does anyone else use raw materials besides China? What has happened to the world that one country seems to be the end-all-be-all of everything commodity? Isn't there materials demand elsewhere? Are we simply going to use the price of some commodities to determine the future of hundreds of companies? And are we going to decide that the savings of the consumers of commodities equal nothing to anyone, nothing positive at least, even as we care so much about gross margins?

Yesterday was the first day that I can recall where we plunged on China weakness and then shook it off, although we never shook off anything commodity. The way the commodity stocks work these days is that they must go down on every single weak Chinese data point. If you graph weak Chinese data points over the stock prices, what you will see is a pretty perfect correlation between the downticks on both. It simply doesn't matter, by the way, if the companies are making money or even if they are trying to do the right thing to bring down costs.

I know this all too well because Action Alerts PLUS took a position in Vale (VALE), which is the best iron-ore producer in the world. If you have any doubt, just speak to the people at Nucor (NUE), who told me just that the other day when I interviewed them. CEO John Ferriola said he could buy any iron in the world but, ton for ton, Vale produces the best ore.

It has meant nothing to the stock -- regardless of what price iron trades at, by the way -- and the price of iron is well above Vale's very production costs. All of the efforts to trim fat and return money to shareholders with a very bountiful dividend have meant nothing, too. Vale's simply another tail wagged by the Chinese data point.

We are seeing the exact same thing happening right now with Cliffs Natural (CLF). Here's an iron-ore maker that has much of its product locked up with solid contracts that aren't dependent upon the world price of iron. Now, the company had overexpanded and had been poorly run for some time. But after some prodding by activists at Casablanca, the company has been making many of the right moves. Again, it doesn't matter. The stock's just been getting crushed by worries over every bit of downtick from China, no matter how slight, and the enterprise value seems to dwindle every day that China sneezes.

And let's be clear about this. We have no idea of the real state of demand in China. The Baltic Freight Index, the best indicator of actual commerce with China -- if you believe, of course, that it is the fulcrum of all bulk goods transported, as anyone who is trading on every tidbit must feel -- has been soaring of late, bouncing up to 1500 a day from 1000. Yes, copper has been weak, but it hasn't yet broken down nearly as badly as the stocks have.

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