Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: Market's One-Track Mind Could Derail Those of Like Thought
Or, to put it more bluntly, it can only focus on one bullish theorem at a time, and it's willing to cast off anything else when it does so. If one idea is bullish, then everything else could be bearish.
Thursday, the market decided that oil is going to the moon. It did that because oil inventories, a small part of a gigantic worldwide pie, showed a huge drawdown. Actually, to be fair to the oil traders who took oil up a couple bucks on this inventory number -- a reduction of 14.5 million barrels -- this was the mother of all inventory declines, the largest since 1999 and the second-biggest ever, topped only by a 1982 benchmark.
This reduction is amazing because no one saw it coming. We have heard over and over again that there is way too much oil, that there has been a gigantic glut, that the price of oil is going through the floor. Each time we have heard it, we learn that either Russia and Saudi Arabia, or Venezuela or Saudi Arabia or Iran, have decided that oil has fallen enough. You hear chatter about an emergency OPEC meeting or two oil ministers getting together over a cup of coffee or a high-ranking oil person in one of these countries talking to another, and it quickly causes a short squeeze that takes oil right back from the low $40s to the high $40s before we get a flood of new American oil that hits the market because it is profitable at those prices.
It's all a big con.
But inventories are not a con job. They are hard numbers. They are verified. And they do matter, even as I said that we should be more concerned about worldwide inventories than the U.S. What this number does say is that reports that there is no more room to store oil may be greatly exaggerated. Reports that we are overrun with imports could be untrue. Reports that the spigot is open, suddenly, because oil can't seem to pierce $40 on the way down can't be possible.
So what happens? The whole oil complex goes completely nutty. As is always the case when oil spikes, the winner is Chesapeake Energy (CHK - Get Report) , which is rallying gigantically, up more than 10%. What is that about? Simple. Chesapeake is considered one of the most troubled companies in the oil patch. It has a horrendous balance sheet and it has had to sell off properties to stay in the game. When you get a spike in oil, any kind of spike, that's a sign that you don't have to worry about Chesapeake -- something that's gone on ever since it hit a buck and a half in the dark days of early February when oil hit the mid-$20s.
While I like the firefighter management at Chesapeake, I am not a huge fan of the stock because the balance sheet of the company is still hideous. But I get the gambit.I find the second-best performer, the kind of stock that makes me cringe because it is such a huge extrapolation of one piece of data, is Diamond Offshore ( DO - Get Report) . Here is a company that literally spoke Tuesday -- yes, two days ago -- and said that business is awful. Why? Because its business is, as it sounds, offshore, and as the company told you, offshore drilling doesn't get profitable for oil companies until oil is at $60. We're at $47. That's a long, long way from $60. The animal-spirited nature of this move, though, prohibits rational thought.
We have a few of the more bedraggled oil companies gaining next, the usual suspects: Murphy Oil (MUR - Get Report) , Southwestern Energy (SWN - Get Report) and Marathon Oil (MRO - Get Report) . They are all in better shape than Chesapeake, but they pretty much are all three of a kind.
And then we get to Apache (APA - Get Report) . Now, when I got in this racket back in the early '80s there was a Canadian stock called Dome Petroleum, a genuine rocket ship of a company with a stock to match. Dome was always telling you about the largest formations of oil in the world. It was one of the greatest runs I have ever seen, but it ended badly, an avalanche of debt wrecking many a speculator's dream.
Now along comes Apache with a promotional announcement declaring that it has found one of the biggest oil fields ever, in the Davis Mountain portion of the Permian basin, where it has secured land that might have as much as 3 billion barrels -- about a year's supply for the United States.
This is a gigantic find and it's been kept very much under wraps, although we know that Core Labs (CLB - Get Report) , the company that specializes in measurement of fields, did come on "Mad Money" a couple years ago and suggested that one of the biggest finds ever might be announced soon. I think it's this one. Apache's stock has increased almost 10% since the announcement, understandable given that the company was worth only about $20 billion before the announcement and the idea that it should be up just 10% if it truly has amassed such a treasure trove does seem a little parsimonious.
Here's the problem, though. Like Dome, we can't prove what it has. It is not like there is independent verification that we can just say "certified by Core Labs" or something, and this has been an area that oil geologists told us for many years wasn't worth fracking about. In fact, it could be a year before we even know for sure that it could be that big. Nevertheless, because of a combination of the big oil inventory drawdown and the fact that this market, today, only has a mind for oil, Apache's stock just roars and roars and roars.
Now here's the issue. The one-track mind does not just favor a group -- it also punishes all other groups. Lots of companies and sectors are laying down on the tracks, so to speak, almost in order to facilitate the smooth train ride for the oils.
Take Apple (AAPL - Get Report) , which is part of the portfolio of my Action Alerts PLUS charitable trust. Here's a company that unveiled a new phone Wednesday that I think is manna from heaven for millennials because it has a better face for games and a longer battery life -- so necessary if you are going to play Mario or look for Charmander in Pokemon Go, where your phone seems to run out of battery life after an hour of virtual reality playing. Sure, the stock got a downgrade, but I think the real reason the stock is down is because the company decided it was no longer going to announce the weekend sales it records for the iPhone Seven -- a process that we had gotten used to since the first rollout back in the day when we would hear from soul supplier AT&T Wireless about the early tallies.
Despite the company making it abundantly clear that this is really a supply issue in that the phone is already sold out so it would just seem like hype, the market reacted hideously the moment Reuters broke the news. I think the reasoning is sound. Apple is no longer retailed just through Apple. The launch is worldwide, for sale in literally hundreds of thousands of places. What's the point of creating a false sense of optimism by waiting until Monday and saying,"It's sold out." I like the reasoning chiefly because it has the advantage of being true, but the market has made up its mind. Period. End of the Apple story.
The market also decided it's the end of the retail world. It's putting together a tale of weak numbers from Pier One (PIR - Get Report) and merging them with slowing sales at one-time retail darling Tractor Supply (TSCO - Get Report) and determining that the consumer is tapped out and not buying anything. So what that Pier One sells a lot of candles and faux wicker and dish towels? Who cares that Tractor Supply's weakness is about the agricultural belt and Texas? It's all about pin action, as in "Sell everything retail!" because nobody's buying anything.
So when you have a market that's made up its mind that only one thing is working and it doesn't bother with anything else, you have a market that's a lot more treacherous than it seems. That's what we have, and if you don't see it, just ask yourself, is it possible that oil, which has fooled us so many times, is finally about to jump 10 points to justify these moves? Is it possible that the consumer has decided to stay home and make dinner and do nothing else? If you think so, what can I say -- this market's for you!
Cramer: Food Companies Are Circling the Wagons -- or Shopping Carts
Posted at 7:08 p.m. EDT on Wednesday, Sept. 7, 2016
Wow, safety costs an awful lot. That's all I could think about as I listened to today's disappointing presentation by General Mills (GIS - Get Report) at the Barclays Global Consumer Staples Conference.
It's not often that you see a stock like Mills drop three points or 4% in one day's session. This is a company of the highest quality that usually has a very good hand on its own destiny.
But it sure didn't this time as it took down guidance it gave last month in part because of yogurt sales, a reminder of just how competitive anything in the supermarket is right now -- natural, organic, packaged, fresh or anything else that's sold. That's Danone in there taking share and taking names. But taking no prisoners.
I was wondering when the pressures on the supermarkets would get to these consumer packaged-goods stocks, because in the end they have moved so much that their yields are now meager.
It was only a matter of time, I guess, when you consider the startling decline in the stock of Campbell Soup (CPB - Get Report) . This stock has lost 10 points in two months, almost all because of a quarter that was surprisingly weak and a dividend that doesn't protect a stock that's run so much on takeover talk and a false belief that its business was more immune to price cutting than any other in the space.
It's not like these are slug companies. Both have moved to do much more in the natural and organic space. But, guess what, the private-label guys have moved in aggressively, too. You can bet that when the accounting mystery of Hain (HAIN - Get Report) is cleared up, you are going to see that it, too, has been hurt by private labels because it hasn't spent enough money defending its brands.
Look, they even got to J.M. Smucker (SJM - Get Report) , which had been the most reliable, because of a price war in what had been one of the strongest aisles in the supermarket: pet food. That was a sucker-punch quarter for certain.
In the end, the consumer's gotten even more frugal, the supermarkets are trying to make as much as they can by pitting everyone against each other, Target (TGT - Get Report) doesn't want to lose share to Walmart (WMT - Get Report) , and the dollar stores are trying to underbid Walmart on food. Costco's (COST) caught in the same vise. Oh, and of course, Amazon's (AMZN - Get Report) there beating everyone to death. The deflation in food is a dark hole that all of these companies are falling into. (Costco is part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)
If you are in any of these stocks, whether it be Kellogg's (K - Get Report) or ConAgra (CAG - Get Report) or Church & Dwight (CHD - Get Report) or even Kimberly Clark (KMB - Get Report) or Clorox (CLX - Get Report) , you have to have one finger on the trigger. We even sold one of my faves, Kraft Heinz (KHC - Get Report) , after a nice gain, because we didn't see the growth case going forward.
This safety group may prove to be the most vulnerable out there at the moment until the yields get to be more support and the takeover chatter ends.
Only then is it safe to be overweight in what's become a very treacherous segment of the supermarket and the market as a whole.