Posted at 12:15 p.m. EDT on Wednesday, Jan. 20, 2016
It's not panic. It's methodical. It's not nuts, it's algorithmic. It's not erratic, it's actually in sync with the rest of the world.
And therein lies the problem.
First, let's put things in context. We're down 10% for the year, which is quite painful. Many stocks are down much, much more than that. We are way off our highs.
But all that means is that we are pretty much in line with other markets around the globe. Given that much money is run by macro concerns, meaning the United States S&P 500 futures vs. those of Europe or Asian countries, it makes perfect sense that we should be down as much or maybe more given that our Federal Reserve is in tightening mode and no one else's is.
I could argue, for example, that Japan, which is down more than 20% from its high, is not that much worse off than we are. I could say Germany, which is down 12% for the year, is much better off than we are because Europe is easing and the country's numbers are pretty darned good. A country like Germany should have a better stock market than ours given the ECB's bias toward easing vs. our bias toward tightening. However, the DAX, which peaked at 12374 back in April, has fallen all the way down to 9355, so I could say we should have a commensurate decline.
Remember, the people who control money just look at countries as investments these days, and we seem expensive vs. these other countries because of the Federal Reserve's policies. (Where, by the way, my writing colleague Matt Horween reminds me, are all of those people who said a rate hike would be good for the economy?)
So, on a macro environment you would be a seller of our market.
How about technical? I find them to be helpful when all hell breaks loose. I had been looking at the flash-crash lows of Aug. 24 as something we would test. Well, we tested and they didn't hold. There are levels that Carolyn Boroden talked about and levels that Bob Lang talked about that could hold, but they would still take us lower. So, technically there is no relief.
How about the other linkage, oil? We are beginning to see the benefits of the consumer spending, according to some of the big banks that have reported. But if you have been looking at the credit markets so ably covered by Carleton English and James Passeri, you would know that they are getting stressed out over oil.
We know the banks that lent to oil companies are taking a hard look at how much they are reserving. Maybe it's not enough given all the loans made to the mid- and small-sized players with stocks that are now selling under $5.
So it has become self-fulfilling and, as my colleague David Faber said this morning, the stress is spilling over to the stronger credits. Oil would be something the weaker companies could live through without reorganizing if we were in the $40 per barrel or even in the high $30s if they could lay off oil in the futures markets at higher prices.
But in the high $20s, everyone loses.
So that's a very big negative.
Finally, there's earnings. I like the earnings so far if you back out the currency weakness. But guess what? This is the quarter that no one is backing out that weakness anymore.
So we search for metrics to call a bottom, for, besides the really nasty sentiment and as bad as it was in 2011, we don't find solace.
Hence why the market seems so capricious and perilous.
When will it not be perilous? When companies that have good yields that get to be great yields vs. the 10-year Treasury and we know they can pay them. And when the S&P 500 sells at about 15x earnings, a P/E multiple that I regard as cheap vs. the earnings I am seeing. We are at 16.3x earnings right now. ... So stay tuned.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
Posted at 1:24 p.m. EDT on Tuesday, Jan. 19, 2016
What would you do if you think the market just has something wrong? What if you think something is way overdone to the downside? That it's ridiculous, but it doesn't want to get it through its thick skull?
Sometimes you have to be patient. Other times you just have to wait. Still other times you are just plain wrong and you have to own that wrong view.
Let's take some concrete examples. Bank of America (BAC - Get Report) reported today and I thought it was a very good quarter. You have excellent loan growth. Very good expense control. Strong interest income, what they make on your deposits. The actual deposit growth itself showed an outstanding level of share take vs. other banks. The tangible book value of $15.62 per share is the actual rock-bottom worth of the company.
And what did the stock do when the company reported these terrific numbers? After initially going up, it got hammered mercilessly, in part because it has some energy exposure -- not as much as I feared, but it has some -- and in part because people feel the expenses weren't cut enough. I was aghast at the decline given that the stock is so far behind all the other major bank stocks, and when the government eventually allows it to buy back stock in amounts it sees fit, every dollar below that book value is a pure win. I think the market's wrong and the stock will rally. That's why I have been buying it for my charitable trust.
Second is Dow Chemical (DOW) . Here's a company that really is doing fabulously with a 43% yield and it is on the cusp of a very important merger with DuPont (DD - Get Report) that will bring out a huge amount of value as the merged company gets split into three different very focused entities. You are paid while you wait and yet it doesn't matter at all because investors, wrongly, think it is linked to oil, and when oil goes down, it should go down. That's nonsense. But I have been wrong now for a half-dozen points betting that Dow has to bottom. You could argue that I just have to admit I am wrong and move on, and if it weren't for that dividend that's probably what I would have to do. (Bank of America and Dow Chemical are part of TheStreet's Action Alerts PLUS portfolio.)
I have been waiting for Delta (DAL - Get Report) to report, and the company's been a huge winner even as the stock's been terrible, down 10% for the year going into today's stellar earnings announcement, which included commentary that would indicate it could save $3 billion in fuel costs and other expenses, and, to quote Richard Anderson, its solid CEO, "We expect to again perform in the top tier of the S&P industrials on earnings growth, margins and cash flows despite global economic challenges."
Yet despite all of this good news, it still only sells at 7x earnings, a signal the market thinks Anderson has no idea what he is talking about. There is not a scintilla of evidence that's the case and it's a rarity, and to me it makes no sense.
But then there is Tiffany (TIF - Get Report) . This one is getting pummeled today, down $2.76 or 4%, and I think it is getting exactly what it deserves. Why? Because Tiffany set you up ... again! It told you, like it did the last quarter, that things were going to get much better. And what happened? They got much worse! Instead of seeing its fiscal year earnings down 5%-10% as it warned, they will be down a full 10%. The company had thought things would turn around this corner, but it based that turn on better sales in the United States, which it specifically had pointed out before were hurt by a strong dollar. Well, guess what, it was even stronger. This stock, if anything, deserves more punishment given this intense disappointment created by the company itself.
So, yes, stocks can be wrong and I can be wrong. But I am not giving up on individual stocks and I think Bank of America and Delta deserve to trade higher, while I accept the market's judgment on how wrong it's been to own Dow and that Tiffany belongs in a robin's-egg blue penalty box until much further notice.