No Reason for Penney to Exist; Party On, Biotech: Jim 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:

  • The issue facing J.C.Penney and all retailers, and
  • The reason why biotech ETFs are breaking out..

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

There's No Reason for Penney to Exist

Posted at 9:45 a.m. EST on Friday, Aug. 15, 2014

What really happened at J.C. Penney  (JCP) ? It went back to being a company that will stay in business for some time and do OK. In retail that, frankly, is monumental.

I have never seen a retailer come back from down-30% comps. It is a testament to two things: one, how unbelievably horrible previous management was and two, the board caught it soon enough that it was able to save the day.

Now here's the issue facing Penney and all retailers for that matter: relevance, as in, raison d'etre relevance.

If you step back and look at the landscape you have to ask yourself that, other than for the 110,000 people who work at Penney, why do we need it? In fact, the chief reason we, in this country, need Penney is kind of like why we need a government works program. We want people put in productive roles so they can lead good lives and put dinner on the table.

But one thing is for certain, we don't need Penney as a place to shop. What we learned from the downturn, and what the company must still battle from here, is that we could have gotten along just fine with or without JCP. Its customers rapidly found other places to go, notably Macy's (M) and TJX (TJX). There were no outpourings of "I want my J.C. Penney because it is the only place I can get my (blank)." There was no sentimentality about it, even. Just a grudging recognition that the brand was so tenuous that some rock head could almost destroy it in 18 months' time.

I think we have to recognize that generationally we have gotten past the mall.

There are four generational reasons why.

  1. Our kids don't have as much money as we do because job growth and job wage growth is anemic so shopping is per se punitive.
  2. We are much more profligate than our kids because we make more money, but we are getting older and we don't feel like spending what we have left if we can avoid it.
  3. Technology makes it so we don't have to get into our car and find a spot and walk past stores we don't want to get to, in order to get to the store that we want to get to, which may not have what we need anyway.
  4. Price discovery via the cell phone has eliminated the ability for any retailer to mark up anything outrageously without being found out immediately as an outlier. So much of retail is commodity.

In that setup, where is J.C. Penney? Let's see.

First, it caters to the older demo that is now past its peak earnings years and wants to save. Second, our kids think it is our store and they want nothing to do with where we want to shop. Three, it's in the mall that we no longer want to go to, and four, it has nothing at all that is proprietary that can't be bought on the Web using Amazon.

If there is an edge, it is the ease with which you can try things on and return them. But the younger generation now knows its sizes and it comfortable returning packages in a way that befuddles the older folks.      

So, JCP hangs on and does what it does for the U.S. economy and helps keep prices down and contributes to the promotional aspects of retail.

So, I say, welcome back J.C. Penney, the jobs have been saved! But retail? Penney's now just one more hurdle in the race to get a lower P/E for the entire group.

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

Party On, Biotech!

Posted at 12:18 p.m. EST on Thursday, Aug. 14, 2014

You can always tell when you are going to have a group move that's boosted by exchange-traded funds. It's when one of the largest players in the ETF has really bad news yet it doesn't matter anyway and the stock goes higher.

This morning Amgen  (AMGN) reported a major disappointment in a multiple myeloma trial of Kyprolis, a key drug and the most important reason why the company paid a $10.4 billion fortune for Onyx Pharmaceuticals last year. Kyprolis has had real success with other kinds of cancers, but this is a major setback because when we first heard of the trial, it drove down the stock of competitor Celgene  (CELG) , which has the top multiple myeloma franchise in Revlimid. I have been following the test and while, of course, you want it to succeed, I knew it would hurt Celgene's stock.

So when I saw the failure, I knew the stock would be hammered. And it was -- for all of about 3 points in premarket trading.

Sure enough, though, it started climbing and then next thing you know it is off to the races.

Why? Because it is a huge portion of a host of biotech ETFs, and they are all breaking out. They are breaking out because when you see low consumer spending at Wal-Mart (WMT) , where 100 million shoppers go each week, you know that there's not going to be a lot of inflation. That's right, the weak numbers of Wal-Mart in this tape inspire biotech buying, which moves up all of the biotech stocks in lockstep because the big hedge funds don't want to own the "wrong" one.

So, the ETFs make every one of these right.

Now, this is all a group move, not an individual move. We know that because Celgene's up less than Amgen as it is less heavily weighted in the ETFs.

Of course, this is pure insanity from a stock picker's point of view, but it is the way of the world right now and it explains why it is so hard not to like this market. Think of it this way: If you own the biotech with the worst piece of news and it goes higher, what happens when you get great news?

These things are all happening because the economy is slow. They always seem counterintuitive because people somehow, even after all of these years, equate a strong economy with higher stock prices. You need to equate a strong economy with one set of stocks and a decelerating economy with another set, namely stocks like those in the biotech index.

It's another oddity of this market, and it's an oddity that can be played even if at this very moment the trade is to sell or short Amgen and go LONG Celgene, because when analysts actually sit down with pen and paper over the weekend, they will realize that this is phenomenal news for Celgene and terrible news for Amgen.

For right now, though? The economy's cooling -- party on, biotech!

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


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