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:
- Why restaurants and retailers are the winners of the moment, and
- The full faith and credit of higher profits and better growth.
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
It's Not Safe to Buy Oils Yet
Posted at 11:17 a.m. EDT on Friday, Nov. 28, 2014
The consumer goods plays and the consumer spend plays are all acting as if numbers are way too low.
I can see that for the restaurants and retailers. Anyone who was doing well before this is doing better. But I am shocked at how fast the consumer goods plays, particularly, stock like Procter (PG) , are performing because those are companies that won't see the benefits for a couple of quarters because they are hedged or because the cumulative declines they are experiencing in packaging and gasoline may not matter this quarter. They are really baking in a terrific 2015.
Now the oils are simply in freefall and I think that they are going to levels that make me feel there is no way yet you can buy them because WE HAVE NOT HAD THE NUMBER CUTS YET. There will be no way to figure out where they are going until the cuts happen.
For example, do you buy an oil with a safe dividend of 6% knowing that it can't protect you from a 10% decline from here? I think that's really the risk/reward. All I can say is that if an oil is at a two-year low and it yields 6% or more, I find that mighty tempting.
The drillers are disastrous, again, until budgets are cut and they must all be cut below $70.
The total collapse of many of the chemicals -- because of an attenuated decline in their ability to charge higher prices if oil is down -- seems a little overdone, but again there will be number cuts, too.
The market's acting rationally overall, but the exacerbations in light of the Saudis carrying the day and the lack of oil demand, or at least ability to store oil at what are thought to be low prices, is pretty shocking. Have to let this all settle, though, before you pick -- and you can only pick among the most hedged. Too early. Still better to buy retailers and restaurants, the true winners for the moment.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
What Really Drives This Market
Posted at 3:40 p.m. EDT on Tuesday, Nov. 25, 2014
So that's why we rallied!
That should have been your reaction to this morning's amazing 3.9% growth in gross domestic product for the third quarter, giving us the fastest growth we've had in 10 years. That's a monumental turn and, while I typically don't care about these broad "macro" numbers, this one is so encouraging I think it's worth discussing.
First, when you have a run like we have had in this stock market, it had better be backed by something. This isn't a Fed-inspired rally any more, one where we like certain stocks for their bond market equivalence. Sure, those stocks are hanging in but they are not generating the performance they once did. In fact, they have been left behind by the rest of the market despite their terrific yields relative to the 10-year Treasury, the oft-compared alternative.
This market's backed by the full faith and credit of higher profits and better growth than we thought. It is spurred on by the consumer spending more money -- something that the GDP of this country, which is 70% consumer-driven, totally affirms. It's spurred by a sense of security, wealth and improvement that's making people more confident. That confidence results in more homes being built, more businesses being started and more hiring ahead.
Some would take issue with my thoughts that this isn't a Fed-fueled rally. But let me ask you this: If the Federal Reserve isn't buying bonds now, how can we lay this one off on the central bank? The recognition of the self-sustaining nature of the run-up changes one of the most important equations in the market. For the longest time, market enthusiasts, the bulls, held that once we got some actual economic strength going, the rally would end. That's because the Fed would begin to raise rates and higher rates would create too much competition for stock dollars while slowing down the economy and causing earnings shortfalls. What's amazing is that both longs and shorts believed this. We have heard many bulls say that as long as rates remain low, they want to buy stocks, particularly ones with really good yields, because they can't get the return they need from stocks. We had many bears talking about how rates must go higher.
You may not have known this, but these people were talking their books, meaning they tended to be both short the bond market and short stocks and they needed rates higher and stocks lower to meet their performance bogeys. They were calling for a bear market to make big money. They haven't gotten it.
Both camps were so Fed-centric that every time the Fed made noises that it would wind up its bond-buying program, they went nuts. The scaredy-cat longs would blow out of their stocks at absurdly low prices and the stalwart shorts would stoke and then feast off the fears they stirred. That's why I have said for years not to listen to these Fed talkers. They either don't understand the stock market or are motivated by greed. I am speaking of two kinds of greed: the kind that comes from being rich already and not wanting your own wealth debased by cheap money, and the kind that is betting against the market and needs it to unravel quickly with the help of a Fed that would be tightening before it should. Alas, the motivation doesn't matter because the impact was the same; if you thought things were getting better in the market, you had to sell.
That's right, for ages, bad was good. The worse the economy, the more likely the Fed would keep rates low, the better the stock market would be. Or, to put it another way, the stronger the economy is, the worse the stock market will be. Good news is bad and bad news is good.
I will concede that was an adequate prop to the market for some time, and I am not dismissing it -- at least, historically. But this most recent advance, the one that started this year, isn't predicated upon that bad is good, good is bad cliché. It's powered by higher profits without an increase in inflation that would make the Fed tighten.
It is true that, normally, when you have 3.9% growth, you would have higher interest rates as a matter of course. It isn't happening, though, for three reasons. First, the rest of the world is in dire straits. Second, there's very little wage inflation. Finally, there's very little commodity inflation.
Think about it: We have interest rates around the world that are ridiculously low, including rates in Spain and Italy that are lower than ours, even as I wouldn't trust those markets to save my life. We have higher employment but not higher wages, and plenty of people are still looking for work. And commodity inflation? Everywhere you look, prices are coming down and the most important of all, energy keeps falling with oil at a four-year low. I am not a bear on oil being down here, but the main thing you need to know is that this 3.9% GDP number comes at a time when things are so weak away from the U.S., that we are the big worldwide beneficiary of the moment.
Which brings me to the crux of this story.
I have been investing in the stock market since 1979. The best parts of whatever rallies we have had came with just the kind of acceleration in earnings that this GDP number would imply. This makes sense. There are flows of funds all over the world. The big money always wants to go where the economies are strongest, not weakest. The U.S. with its relative strength is going to get more foreign money in to buy stocks.
How does this play out? OK, let's use the example of Apple (AAPL) , which, at one point, touched the $700 billion market. That's a huge amount, of course, and you know me: For ages I have said to own, not sell or trade, this stock. Here's why: Despite its amazing run, up 47% year to date, the stock only sells at 15x next year's respective earnings estimates. Right now, the average stock sells at 18x earnings. You have to ask yourself how is that possible? Doesn't the stock of a company with superior growth characteristics with ample opportunity to buy back stock with its humongous cash hoard and new products ahead deserve to trade as high as the average stock? Isn't it somewhat foolish or at least odd that it trades at a discount to the average S&P 500 security?
I think the answer is yes. So, let's say, you are a portfolio manager from overseas. You want to be in our country because money is drawn to the strongest countries with the best growth and a currency that is most likely to appreciate. That's the U.S. You want to own big-capitalization stocks that are inexpensive and levered to consumer spending. That means you are going to buy a stock like Apple. That's pretty much how the global investment process works.
Of course, it also works in a larger way. A foreign investor can buy the entire S&P 500 knowing that it has superior growth characteristics to their own country. Remember, you must consider us as a magnet to the world's wealth, and we are going to keep pulling that money in as long as our economy stays strong. As I like to say, their weakness is our strength.
So, before you think, wow, we are now way too high given that good news is bad news because the Fed will tighten, remember that the Fed isn't the deciding point any more. It's growth and it's profits -- and we have both. The other guys don't. Sometimes, that's all you need to know to justify, not rationalize, where stocks have been and where they most likely will go.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long AAPL.