What to buy, sell ahead of Fed tapering
Some sectors are worth investing in if the central bank begins to cut back on quantitative easing. Keep away from some others, though.
We just had a correction based on that concept and I think the answer for most stocks is no, not if it is going to go on for months and months, which is what I would fear.
That's why I think you have to accept the fact that raising cash on days like Monday in the groups that were hardest hit makes a ton of sense.
But what acted well in the downturn? What didn't give up the ghost? Two groups: tech and banks.
I recently spoke at TheStreetMonster Conference and I emphasized these two groups for different reasons. First, the banks will roar in a situation where the Fed stops suppressing interest rates because the best money they can make is by paying the curve, giving you bad prices for your CDs, while they invest at better prices. That's how Jamie Dmon says JPMorgan (JPM) can make $2 billion more with a normalized yield curve than he does now. These stocks are classic weakness buys as people will continue to be confused about what drives bank stocks higher. They go higher on net interest margin either on their loans or their investments or both. An end to the buying will mean we are good to go as a nation for the first part of the earnings and the banks will be coining money on the second.
I would also argue that the international banks might be the best ones because we will get a taper if Bernanke and company believe that part of the reason why it is safe to cut back is that Europe is coming back. Remember, the euro is strong, that's a sign of continental strength, which means that JPM or Citi (C) or Goldman Sachs (GS) could be very right.
So owning banks through the taper will be a good idea.
Second, the dry run revealed tremendous pent-up demand for old tech. Here, I am talking about disk drives, flash drives and semiconductors that have lots of cyclical growth to them. Here, again, Europe is incredibly important for tech earnings and I do not believe we will get a taper without Europe coming back and coming back to the point where it is obvious to all.
That means the drives and the flashes and the semis and even stocks like Hewlett-Packard (HPQ) are buys if we get some bad news on Wednesday afternoon. I love the fact that the world seems to be short the drive stocks and the hedge funds despise them. I love it because the drives trade on new construction of drive factories and there's been a shocking dearth of them. You do not sell these stocks when that is the case because it means that inventory's lean, which is the best time to buy them.
Now what's not worth buying? I think we saw the future with that walloping that the REITs, the utilities and the MLPs had. That was your wake-up call to dump. I like these stocks very much, but the fire drill told you to stay away. Emerging markets will continue to be slaughtered because people never learn. And I believe that the home builders will keep rolling over until we actually see the quarters and we realize they weren't hurt that badly after all.
So banks and tech work, bond market equivalents and emerging markets don't. That may be all you need to know going into taper time.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long JPM and GS.
More from TheStreet.com
MSN Money on Twitter and Facebook@msn_money and @topstocksmsn
I agree Brutus, And think the Big Boys on the street are only using a lot of the scuttle to cause dips to their advantage.
This constant 2-3 % playground (out and back-in) has not helped to sustain a healthy Market..
The old mantra of daytraders, working a cheap stock for nickels and dimes; Most went broke.
Now we have Manipulation, by whiz kids using HFTs and algorithms(sp) for pennies,nickels and dimes.
They are not in Mom's basement...
And they don't give a damn about Markets, as long as their numbers look good at week's end..
And they are using other people's monies...OPMs
Therefore, THEY can't go broke.
"There's a problem in the cockpit."
"What is it?"
"That's the little room in the front of the plane where the pilot sits, but that's not important now."
If the FEDS get out of the Way and let the Markets decide who win and loses, we get fairer price discovery. Now, it's just throwing stuff on the Wall and seeing what Sticks. That's a dangerous game where the stakes are only increasing. Uncle Ben is playing us and the House always Wins.
We could see 1.35 on the Euro over the next 10 days or so, maybe sooner.
So, what would happen if somebody wacked Ben Bernanke and buried him in a hole in the ground about 10 feet from where they buried Jimmy Hoffa?
Nothing would happen.
Not to change the subject:
See page C4 of today's WSJ for an example of multiple federal intrusions into a market and the resulting unintended consequences. It was the sugar market in this case and I didn't know whether to laugh or cry.
And the beat goes on!
So, what would happen if you put all of your money in MLPs?
You'd have as much cash as a Colombian drug lord. Now there's something to think about.
So, what if the President puts Bernanke out to pasture? Now there's something to think about.
NTU....Sorry I just don't see deflation in the cards...Slow to rising inflation, being kept under tight control to screw the consumer/workers*...Interest rates down to screw the Savers and Seniors..
Seems to me we have been in a spiraling stagflation mode for many months now on several fronts.
One not being, would be Food and Energy costs, but even that can be defrayed to smart shopping.
Housing up, yeah maybe; But still many units are available without consumers to buy them..
As far as wages(if people even have a FT job) how many have seen worthwhile increases.?
As far as overall Markets, some Sectors have gained over the long term; But FMV of most Portfolios has remained somewhat constant, over several months and depending mostly on diversification and frequency of re-allocations or trading.
Some sectors are substancially up, others in general are only treading water; With way too many varibles to consider.
*edited--for workers also.
So, what if Boeing decides to build the 787 Dash 10 in North Carolina? Now there's something to think about.
Yup the REITS have us concerned and a little PO'd....Thought we had more time to finish.
I really don't see the problem in some of the MLPs or LPs though...
Guess I better take some closer looks..
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
Even if you're a full-on bull for certain picks, it's helpful to know how negative the bets are against them.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.