Jim Cramer shares his views every day on RealMoney. Click here for a real-time look at his insights and musings.
Cramer: 4 Companies Have Products That Rise Above the Macro
Posted at 6:29 a.m. EDT on Friday, Nov. 18, 2016
There was no macro on the Salesforce.com (CRM) call. We did not hear macro mentioned when it came to The Children's Place (PLCE) call. If you heard macro with Nvidia (NVDA) , let me know. I sure didn't. While it seems like ages ago, I still can recall--starkly--that you didn't get a lot of macro on the Netflix (NFLX) call either.
We have all pretty much gotten used to terms like "macro," which we rarely have heard before the Great Recession. In fact, a decade ago if you blamed the macro, meaning the all-around, competitive funk that surrounds this world, I used to think that it was some sort of alibi; that you had simply failed to execute, something that was always proven right when the competitors in your segment blew out the numbers and didn't have any "macro" worries.
The fact is now, though, that almost every company does have macro worries and there are only a handful that don't. Almost every company sees too much competition or had clients or customers who are cautious or can hold back spending.
In fact, the reason why you saw such huge moves up in the stocks of Salesforce, Children' Place, Nvidia and Netflix was precisely because they have products that transcended the macro--something that's remarkably rare.
It's ironic, as I write this, I can recall times where I would single out a company that blamed the macro and I would point a finger and say "oh yeah, well where's the macro alibi on so-and-so's call."
But the sheer lack of companies that didn't fall back on something or complain or wring hands this quarter tells me that it is the macro. It also tells me when you have a company that doesn't complain it's a pretty rare breed.
Although the cloud space is ferocious, the fact that Salesforce won contracts from dominant names in pretty much every vertical tells me that it just happens to have a fabulous suite of products and amazing execution. That's a rare breed in tech. Jane Elfers just seems to own the children's space in the mall. No matter what anyone, including Amazon (AMZN) , says, there is only one Netflix.
And Nvidia? It's like the Intel of old. It has the chips that work the fastest, with the most power, which are also the most elegant. It has outengineered everyone else.
Now, what does this paucity of non-macro blamers really say?
I think it's part and parcel with the election, frankly. It says something about the results that the pollsters didn't catch. The reason why companies blame the macro so much is because the macro is indeed awful. Yes, employment's good. Yes, there are jobs to be had and wages are going higher.
But there isn't enough growth to go around and people are sick of it. They want less gloom. They want more surety. They want a sense of order. An election may not solve that. However, the fact that I can only think of four companies that didn't fall back on the excuse of the macro--and I am including drug companies--tells me that the macro's no excuse; it's real. It's why so many businesses are not performing as well as they should.
Any sign that it's getting better will take stocks a lot higher than they have gone. You know why? Because if I can recall only four companies that didn't blame it for some weakness, then it's real. And it's just plain wrong that it's that bad, and it's about time the government--any government--did something about it.
Cramer: Welcome to the World of Inflation Negativity
Posted at 1:26 p.m. EDT on Tuesday, Nov. 15, 2016
Let's re-order things with high-growth tech and figure out what's going on.
When you value tech, I always tell you that you can't look to the near term. If you do that, you miss the bigger picture.
For example, if you look at Facebook (FB) when it was about half of where it is now, the stock looked very expensive on future earnings.
But it turned out that future earnings were far greater than anyone thought, meaning that when the company reported, you got a huge beat and raise, over-and-over again.
So a company that you thought might earn, say, $1.30 in 2015 when the stock was $53 in 2014, ended up earning $2.25. Sure 23x next year's earnings isn't all that cheap, but for a company that's growing at 50%, that's probably one of the most inexpensive companies in the S&P universe. So, in other words, Action Alerts PLUS holding Facebook looked expensive--but it sure wasn't, in reality.
Now, fast forward to the last quarter. It was a good one, but the company made cautious comments about its advertising load, and the analysts--while reiterating their buys--were clearly concerned that things might not be as rosy as they thought.
None of the analysts cut numbers. But you didn't get the big number boosts that you would have liked to see.
That is the setup going into the Trump win. If Hillary Clinton had won the election, then we figured there would be more gridlock, right? Gridlock meant nothing done. It meant tax increases, if there would be any changes. It would mean no infrastructure spend and no tax repatriation. These two parties could never get in alignment about these issues.
Not with Trump. With Trump all of these dreams might be fulfilled. If that's the case, then there will have to be much more borrowing to cover the expenses of the government and the programs that Trump wants to do. Remember, my money is on a $500 billion, 30-year "Make America Great Again" infrastructure bond for the U.S. government to take advantage of low rates.
Still, what would happen and what has been happening is that rates have been going higher, because of all of the potential of the Trump policies to grow the economy.
Growing the economy has a good and a bad component. The good component is that you are putting a lot more people to work and you are going to get a multiplier effect for all of that money you spend.
The downside? Inflation.
When you have inflation it means that you are unwilling to pay more for those out-years' earnings, because money may not be worth as much in the future. Inflation erodes purchasing power and earnings power.
So Facebook, which might be expensive now on future earnings, may turn out to be expensive period.
Now you know the way this market works. It takes cues from everything. For example, when rates are higher, traders presume inflation. If there is inflation, they sell Facebook.
But if rates go lower, even for a day, as they are today, then the same investors make a judgment that there's less inflation so therefore Facebook is worth more on those earnings.
The same case is made for Action Alerts PLUS holding Alphabet (GOOGL) and for Lam Research (LRCX) and Broadcom (AVGO) and Growth Seeker holding Amazon (AMZN) --and a host of other high-growth companies.
Does it seem silly?
That's not for us to judge.
It's what happens. You have to get used to it. I say that because if there is indeed a pivot here, and that we have seen the bottom in long-term rates, then every time you see rates go up you are going to see Facebook and Co. go down. The inverse will be true, too.
Welcome to the world of inflation negativity. It will be a constant theme going forward as it was before the Great Recession. So stop asking "why is FANG down?" Unless one of them reported, it's because of the process I have outlined.
It's a drag, and it seems distorted and twisted. Yet it's always been that way in the past, so there is no reason to believe we're exempt now.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long FB and GOOGL.