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.

By Jim Cramer Jun 18, 2013 9:40AM

thestreet logoCan you ride out the end of bond buying?

 

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.

 

Federal Reserve Building (© Hisham Ibrahim/Corbis)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.

 

cramer

 


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.

 

 

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44Comments
Jun 18, 2013 10:22AM
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If interest rates really start to head towards the classic 4-5% sweet spot the US economy is going to dry up like a bag of Boomer raisins. There are so many people with funds in dividend stocks and money market accounts that would rather be in FDIC insured CDs. The housing recession has proved two very valuable lessons, 1) Don't ever, ever trust a banker, 2) Don't ever, ever trust the US government. The two groups have screwed those that deposited and saved their hard earned monies to bail out crocks like AIG, BAC, GM, GS, JPM and dozens of others.
Jun 18, 2013 11:00AM
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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.

Jun 18, 2013 2:04PM
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"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."

 

 

Jun 18, 2013 2:44PM
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Diversify your assets.  Diversify asset classes, diversify sectors within each class and diversify the countries in which you purchase them as well.  That is the only "safe" way to keep your portfolio.  Or spend it all for a spot in VL's bunker, enjoy the preserved foods, I hear the hydrogenated powdered cheese is especially good when you haven't felt day light for 3+ years. 
Jun 18, 2013 1:25PM
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On one hand we hear that Corporate Balance sheets have never been in better shape. On the other hand we hear about the plight of what some call 70% of the Economy, Consumers are suffering. So if the Corporations are doing extremely well but an increasing number of Consumers aren't, what's the end game. The Feds continual actions without end can only end badly but the Jury is still out to what the Ramifications will be if they stop far sooner than later.

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.

Jun 18, 2013 10:27AM
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The official UE rate isn't anywhere near the 6.5% target, and the official inflation rate is still on the low side.  There will be no Fed tapering any time soon.   Ride the wave and diligently continue to adjust those stop-loss points as we move higher.

We could see 1.35 on the Euro over the next 10 days or so, maybe sooner.

Jun 18, 2013 2:31PM
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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.

 

 

Jun 18, 2013 12:13PM
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How do we know that certain FED actions weren't intended consequences. How do we know for sure that the markets are only falling because folks are saying they should fall and investors act accordingly. The sequester was the 800 pound Gorilla until it wasn't. Of course, that debate is hardly over. Fact is, we don't know what the reaction long term will be until the Feds get out of the Way. WallStreet is famous for changing the rallying Cry. This time will be no different.
Jun 18, 2013 1:10PM
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Once the Fed withdraws what they call stimulus, or, in straight word, money printing, the economy will collapse
Jun 18, 2013 12:06PM
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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!

 

   

Jun 18, 2013 2:19PM
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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.

 

 

 

 

Jun 18, 2013 1:53PM
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So, what if the President puts Bernanke out to pasture?  Now there's something to think about.

 

 

Jun 18, 2013 11:22AM
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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.

Jun 18, 2013 2:32PM
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Kramer, do us a favor and tell Steve Liesman to shut up and stop trying to second guess the Fed.   
Jun 18, 2013 2:32PM
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So far so good, moving sideways for now which is fine, however, 90 long minutes to go, do not take anything for granted, we never do; crooks here can strike in no time....More after the close.
Jun 18, 2013 2:11PM
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So, what if Boeing decides to build the 787 Dash 10 in North Carolina?  Now there's something to think about.

 

 

Jun 18, 2013 11:17AM
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I always try and understand that nothing ever goes straight up or down.  The trend in my opinion is where the money is.  I see housing having a little burp now but there are no fantastic changes to see it doing anything but faltering and falling all over again.  It takes a lot of air to keep many of these sections airborne.  We saw many of them exchange from one to the other on the way up and no reason to assume otherwise on the way down.  I know folks see the QE's as important, which they are, but markets yes do return to their arbitrage point both after stimulus is removed but also can just tire of it after it becomes accepted, which is where I see us now. This entire QE thing is a form of psychological carrot.  We are being shown an action that suggests an ensuing reaction.  Rarely do these things come off completely as planned and a FED manager must be nimble to see when the smell of bacon cooking  is no longer strong enough to entice the neighborhood.
Jun 18, 2013 4:02PM
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It's bad luck that V_L didn't share a rant about the market crushing all you grubbers tomorrow. I think we got a problem for tomorrow.
Jun 18, 2013 10:12AM
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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..

Jun 18, 2013 6:23PM
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Nice close, now, lets talk about tomorrow....Fed day; remember folks, its not what the Fed says, its how they "interpret" what the Fed says....The good guys will want to bring the markets higher and the scumbags will want to sell off, things never change....Oh well, we will find out tomorrow.
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