Was Monday's sell-off justified?

When stocks move higher Tuesday, just remember the reasons for the panic in the last hour.

By Jim Cramer Jun 25, 2013 9:52AM

thestreet logoSo where are the sellers? Where are the motivated sellers from Monday -- motivated for why, for what? What were they so scared about?


On Monday, the market had a whoosh down that was classic in its intensity and its extremes. It looked to wipe out all of the sellers. Just take a look at those intraday lows. Not only that, but using the excellent work of Options Profits writer Mark Sebastian -- and I urge you to read his stuff -- there was an intraday moment when the CBOE Volatility Index (VIX) stopped going up even as the S&P 500 ($INX) kept going down. That was a signal that the fear had petered out and that it was time to get long.

 

Yet the close was hideous and a total give-up.
Here's what I think happened. We are at a perilous moment when pretty much every market has a shot of breaking down on any given day. Look at the globe. We're seeing tremendous instability in Japan right from the top. There's an amazing weakening in Australia, given its commodity-based economy, coupled with a too-eco-friendly government.

 

China? All I can say is, in the words of the Beatles: You say you want a revolution? I think the people do. They are tired of not being able to see their feet. They are tired of the repression. They are tired of the government creating military sideshows in order to take peoples' minds off the miserable day-to-day. Meanwhile, the flash purchasing managers index came in below 50, signaling a slowdown. Yet, even in light of this, the one thing no one is talking about is the potential for an actual collapse, as we saw among bad banks in 2008 and 2009. Why don't they? Their banks are apparently all a bunch of Washington Mutuals. China's looking a lot like a paper tiger.

 

Arrow Down (© Image Source/SuperStock)The Philippines and Indonesia have built up stock markets in the last few years that need money from outside in order to grow -- and any country that needs money had had hot money that's now coming out of it. They're classic hot spots that no one is paying attention to.

 

Thailand? What can I say? Will they ever learn?


Russia, meanwhile, has suddenly morphed into a bear market from who-knows-where. Europe? The tone has gotten bad again with a recognition that there is still no growth to speak of -- and, while things have bottomed, that country never fixed its banks.

 

Plus, France has the worst government in Europe. Unlike in Spain and Italy, France simply doesn't get it at all, and is going backwards. They are lucky in France to have a government that is so cozy to the banks. Otherwise that sector would be revealed, perhaps, as no better than that of Italy or Spain when it comes to risk control.

 

As for India, it's putting controls on everything that moves, and it seems as if the country is having actual stagflation, which is the worst and most intractable of problems.

 

Over in Latin America, a million people are taking to the streets to oppose the "Let them eat the Olympics and World Cup" style of infrastructure. No one even knows what a new government would look like, but this one is the height of instability. Brazil's richest man, Eike Batista, seems to have his now-poor tentacles everywhere while the commodity-based economy truly falls apart.

At the same time, the economic miracle that is Mexico has totally fallen apart, and all I can say is, "Have you seen that ETF?" The iShares MSCI Mexico Capped Investable Market Index Fund (EWW) is just in free fall, in part because new President Enrique Peña Nieto has decided to tackle the most intractable of interest groups: the two cartels who have run that country, the drug cartel and the rich family cartel. The companies that dominate the exchange are all potentially in the crosshairs of a reformist who wasn't elected to bring reform.

 

It is against that backdrop that the Federal Reserve signaled that perhaps things are getting better faster in the U.S., although the only things that were really getting better were autos and single-family homes. However, the Fed's balance sheet had gotten out of control, and the world's largest trading desk -- the Federal Reserve -- had to face up to its role as the big swinger in the bonds. That's something no one wants to be, because Chairman Ben Bernanke was more trapped than even the London Whale.

 

So I guess that, in the end, you can't blame anyone for panicking in the last hour, betting that one of these powder kegs wouldn't go off. But they didn't. The 10-year U.S. Treasury is coming down in interest, and the seller? Well, all I can say is that they'd better be a long seller. A short seller is in a world of hurt -- at least at the opening.

 

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 has no positions in stocks mentioned.

 

 

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47Comments
Jun 25, 2013 10:38AM
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If the fed dose what it says it will do and stop printing money our economy will continue to improve. Our biggest problem is congress. Congress will protect their vested interests at the expense of the American people and our economy. An example is the recent farm bill. It was a con job by congress to protect agricultures vested interests. Agriculture should have been put on the free market in 1945 it is a complete waste of taxpayer money. Congress need to cut the federal budget by at least 35%.

Jun 25, 2013 10:38AM
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China may be a paper tiger for the time being, but they have something going for them that we don't - a massive infrastructure plan that is built to sustain them for the next century and beyond.  Meanwhile, most of our bridges and roads and dams are 50+ years old, our power grid looks like a science fair project, and most of our new construction goes up in record time and is made with materials that will be lucky to last 15 years.  And worse yet, we don't have a real plan in place to seriously address any of these issues.  That trillion dollar "stimulus-bill-that-wasn't"  sure was a missed opportunity.  We had a real chance to to make some long term improvements and create jobs all at the same time.  Instead, it was used as a massive money laundering scheme to bail out the unions, who in turn donated a percentage of the proceeds to the DNC.
Jun 25, 2013 1:14PM
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I watched an interesting debate on the immigration law they're trying to resolve. Heritage foundation against the Caito Institute on C-SPAN Sunday morning its worth a look,two completely opposite views from what I thought would be two very similar.One with a view of how granting amnesty would help the economy and the other stating quite convincingly how the vast majority of the 11 million(approx) would come into our country with a 10th grade education or less and how their studies show over a lifetime that 10th grade education or less  immigrant would take in $600,000 more in government programs than they put into any kind of help to the economy. I'm sorry but I believe the latter,immigration is MUCH different now than it was100 years ago,back then HARD WORK would make it possible to acheive the American Dream,now I think education has much more to the dream.
Jun 25, 2013 11:26AM
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Imagine America as a humongous beached whale with a gazillion pounds of blubber.  This stumbling mumbling giant has been feasted upon through free trade for some 20 years now.  The 3.5 billion citizens in the Asian rim countries have been given  free access to dine to their delight on this carcass.  The bones are beginning to show and it is evident this will not be able to feed these folks forever.  China, Korea, India, Mexico are the major beneficiaries of the Lame save everyone in the world but Americans world policy of the corrupt apologetic American Political system.  It seems every week another smaller country is granted access to the carcass as well.  If you care to stand back and look at this bleak picture ask yourself these question. How long can this go on?  How much longer until we have serious social strife as Americans are pushed back into the economic dark ages? Why are we borrowing a $trillion a year of our childrens and grandchildrens futures to continue this charade? These are the macro economic questions and problems we need to look at before any of these other issues such as housing, manufacturing, education, and social security can be effectively planned out and the citizens asked to organize as a cohesive citizenry. Just who is directing us down this path of guaranteed failure?  

Jun 25, 2013 2:05PM
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the genius of cramer...........how does he do it..........making millions by telling us what happened yesterday..........genius
Jun 25, 2013 10:44AM
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Panic over near term higher rates is all manipulation. Rates will fall back as soon as everyone realizes that the Fed's QE3 isn't the only thing keeping rates low. The US economy is going to be sluggish for at least 2-3 more years if not longer.  The Fed is not going to meet their unemployment goal of 6.5% by the end of 2014. Housing is going to be hurt by rates over 4% until employment and wages pick up.
Jun 25, 2013 11:46AM
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Deliquent car loans up from last year,does this scare anyone or does it even matter.
Jun 25, 2013 12:40PM
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Barry, what kind of car do you drive?A Rambler,a Pinto,a Vega,Gremlin?
Jun 25, 2013 12:52PM
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Brutus...Just about gave you my "coveted thumbs up" for your positions on China and then the shambles our Country is facing with "aging infrastructure"..Then you had to add the "last sentence" about Unions.

Somedays you seemed fairly well informed, then you just walk off the end of the pier..To drown.

 

Fatty Cakes, you are coming up with some pretty good shidt today, many should take heed.

But as usual it starts breaking down into childish name calling or Bravado....Keep trying.

 

I hope all others that may be invested in different ways, are enjoying the mini ride today..

Keep up the hope and changy thing...And don't give up..We haven't even found the Fat Lady yet.

Stay tuned to your seer...CGT.

 

Jun 25, 2013 4:15PM
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You may just be correct...Chris.

It was an interesting day in the Markets, it was hot and stormy here, much like the Markets.

Jun 25, 2013 12:59PM
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Barry, I have a job for you.You can be my pool boy.Sice you Repubs are against minimum

wage I`ll only pay yo $1.60 an Hour.You can prtend it`s 1971 when your buddy Nixon was President.

Jun 25, 2013 3:33PM
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does 1 overreaction deserve another?
Jun 25, 2013 2:45PM
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I've always said, just a Red tennis ball for a nose...

 

Maybe Jim will do it just for fun someday...

Jun 25, 2013 11:45AM
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I'm thinking Cramer's articles are getting a bit better from time to time.  More often I'm finding something here to think about.

 

So, when are we all going to meet in Vegas?  I'm headed back again in May, but I'd like to go sooner.  And the wife and I are looking at going to the NASCAR race there in March, just like we did last year.

 

 

Jun 25, 2013 2:57PM
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Not much to say really, went 40% bonds (no American bonds, a mix of Canadian and international) back in May, enjoy seeing those profits safe.  Going to sit back and watch for a bit, no panic selling or buying.  Let things sort themselves out until fall, when you still have 33 years (unless they raise the Canada pension plan eligibility... again) until retirement you can afford not to panic every time  the manipulators and scumbags take over.  
Play nice form people.
Retog you may need to take a 12 step program to quit posting on here.

Jun 25, 2013 2:44PM
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Yes TOG, agree.  I still have an open buy order on COP below $60.00, but it's crawing its way back up so we'll have to see.

 

Another possibility is PNW, the per share price dropped so low it raised the annual dividend above 4.00 percent (assuming they keep paying the same dividend, which is not a given).

 

Other than that, I'd like to stay on the sidelines for a while and watch interest rates.  Schwab is now offering brokered CDs paying 3.5 percent a year.  That's not half bad for the peace of mind.  Unless one day the FDIC collapses.  And now a days . . . . . nothing would surprise me.

 

But the money comes in every month and you gotta invest it somewhere.

 

I'm ready to get back to Vegas.  I've read a couple of books about dice control and have been having pretty good luck at the local Indian casinos even though the tables are hard as rock and 14 feet long.

 

 

Jun 25, 2013 1:21PM
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Nope ABS...Not un-retired...I retired 15 years ago...

Just taking a breather from some of the stuff on here that makes little or NO sense..

And maybe(my own) keeping the comments down or at least trying..

Somewhat a waste of my time...Somedays; When I have other stuff to do that's more important.

 

Watching the Markets today and different Watchlists, everything is good, except Walgreens(WAG); Which is killing our joyful day...Others are picking up the slack.

Like I have mentioned before, I'm an Investor first; And like old Fredddd used to say this part of MSN is a passtime....I miss his wit and wisdom.

BTW....Not to brag, isn't necessary; We control about 800 shares of WAG...That should put a nice downpayment on a decent Beemer... 

Jun 25, 2013 12:52PM
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NO.  The Market behaved shamefully, with no confidence in America.  Today is a different story!!
Jun 25, 2013 1:34PM
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Barry, I just became a millionaire last year thanks to the market.I used different personas

to teach you Repubs.I`m here to educate.

Jun 25, 2013 10:15AM
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There is no housing recovery it is all BULL "S" by the spin masters !  This is your recovery  12 million home owners with negative equity (upside down) on their loans cant buy cant sell !  The banking cartel sitting on their shadow inventory of 10 million homes and counting ! Another 10 million homes in some state of default or foreclosure ! That is the middle class housing recovery for you !
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