The Difference Between Europe and Us

This article originally appeared on RealMoney.com on Sept. 4, 2014 at 6:03 p.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.

On the one hand, we have a country of 313 million people that's on the mend, an anemic grower that could be getting stronger. On the other hand we have a continent of 742 million people that's sick and getting sicker. This combination of an improving United States and a faltering Europe has become a very big factor in why our stock market's been a terrific place to invest all year, even as on any given day, of course, it can decline or just plain old mark time.

It's always mystifying to people how these two regions can interrelate. For most of my career, they really were quite separate. But that's because they weren't taken en masse until the creation of the euro 15 years ago, and they haven't had a real impact until the European economies started faltering right after so many of our countries decided that Europe, with its huge and growing population entwined in a single currency, is just too juicy a place to invest.

Not any more. It's becoming a disaster as the continent's economy shrinks, demand dries up and the biggest country in the union, Germany, insists on maintaining a balanced budget even as the opposite strategy is needed to spur growth. Consider Germany's leader, Angela Merkel, the Herbert Hoover of Europe, committed to fiscal discipline even as the Continent plunges back into recession. Contrast her with the European central banker Mario Draghi, who is trying to be Franklin Delano Roosevelt, combating the deflationary decline with easier money left and right, including today's surprising rate cut and a pledge to buy all sorts of unorthodox bonds to get things moving.

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Now all day you may have heard that there's bad news here. Draghi's actions make the dollar too strong for our export companies to stay competitive with Europe -- that was one common refrain, and I am not in disagreement, which is one reason why I have said that that group no longer strikes me as having as much upside as it did coming into the year. The recklessness of Draghi will come back to haunt all of us is another complaint that resonated all day.

Sorry, I want to take the other side of the trade. You know I always end the show saying there's a bull market somewhere. We've been in bull mode for ages in this country and every time it appears that we have run out of reasons to go higher, something comes along to spur us to even more exalted levels. And, right now, the savings of the world seem to be headed here, especially from Europe. Remember many of the 742 million people in Europe save money, and that money's easily sent here, as is the money that might have gone to European bonds from all over the globe to get diversification from just investing in the U.S.

Now, none of that documented influx of money would matter if our nation were faltering. But the fact is, it isn't. There's some decent job growth, a growing manufacturing base, courtesy the energy revolution I talk about nightly, and some very strong retail sales. With those inputs, you get profit growth that allows companies to buy back stock and increase dividends, with the latter becoming a magnet for those who seek yield and are willing to take on the risk that common stocks give you. Remember, unlike bonds, they don't give you your money back in five, 10, 20 or 30 years.

But, also unlike bonds, they can give you growth, both in the capital gains stream -- stocks can go higher -- and more income in the form of dividend boosts.

Again, though, if our economy were stalling out, doing what Europe's going through, our stock market would already be way too high. And if our economy had runaway inflation, then the Fed would take short-term interest rates up, perhaps dramatically. But that's not the case. One of the best calls I have seen all year was when Fed chief Janet Yellen said the inflation we were seeing in our nation was just noisy, meaning it was short-term in duration.

Just think what's happened since that call. An amazing and abundant harvest has brought down the price of the basic building block of our food chain, the grain complex, including all-important corn prices, which hit a four-year low today. Beef has come off its highs because Vladimir Putin, in some weird attempt to hurt our economy, banned U.S. beef imports. The strong dollar is reducing the price of gasoline to much lower levels than we would expect with this expansion. Natural gas peaked and has been hammered. And now with the discovery by Zoetis (ZTS) of a vaccine to cure a horrendous disease that was killing pigs, the price of pork, which has doubled in a year's time, will now recede rapidly. Sure, milk is too high, but I think it has peaked, too.

Yet, with all of this good news on the inflation front, if we didn't have a more robust economy we could be in the soup here, too.

The fact is, though, we do. I think we hit some sort of surprising inflection point in the last six weeks of this economy. August, it turns out, for some reasons still not all that clear, was an amazingly strong month for the U.S. economy. Now I know there is a tendency to be jaundiced about all things U.S. but I'm just not going there. We have too much evidence to the contrary. First, there's the terrific news we heard from PVH (PVH) CEO Manny Chirico just last night on Mad Money that back-to-school season is very strong, something people obviously didn't expect or the stock wouldn't have been up over 10 bucks today. Why does PVH matter? Because it sells into all sorts of retailers, from Macy's  (M)  to J.C. Penney  (JCP)  to Kohl's  (KSS) , and so many others, which is what happens when you have a plurality of the shirt-and-tie market in this country. And it's not just PVH. Costco  (COST) reported an astoundingly positive high single-digit comparable-store sales number this morning. Again, that's a tremendous harbinger of retail things to come.

We also are hearing numbers in autos that are outrageously positive, 17.5 million units. Again, autos matter. They are a sign that more people are going to work and the industry itself puts a lot of people to work.

Sure, housing is not strong and we wish there were more commercial construction, but the simple fact is that the American consumer is spending and we are an economy that's largely based on consumer spending.

What else is different between Europe and us? Think about the innovation. Think about the discoveries. Think about the technology gains we have seen that have created billions upon billions in wealth for founders, investors, workers and shareholders. That wealth is disproportionately created in California, but California's one-fifth of the U.S. When you combine that with all of the job creation related to energy and you get a mosaic of national growth that's a lot better than many realize, including those endless doubters of this stock market.

Now, I am not saying that all of these inputs and contrasts must combine to advance stock prices. I am saying that, as I wrote this morning, the stock market is saner than many think it is, especially considering the fixed-income alternatives out there.

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Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long PVH.

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