Are Europe and China finally reversing?

With positive PMIs from both, this could lift many companies that do business there. Yet many are dramatically underweighted these companies.

By Jim Cramer Aug 2, 2013 9:56AM

thestreet logoArrow Up (© Photodisc/Photolibrary)Look, sometimes it just goes the bulls' way. It just does. You may think that the market is due, that it should pull back and that it is overheated -- and then it breaks for the bulls again.

 

Take Thursday morning. Before the market even opened for trading, you knew it was going to be a good one because of the number 50.3. That's what the industrial purchasing managers index was for China last month. It's also, by sheer coincidence, the same PMI number Europe gave us.

 

These two numbers come at the perfect time. The world seems to be short China shares because this has been such a horrendous market for so long. Stocks like Caterpillar (CAT), Cummins (CMI), Joy Global (JOY), Rio Tinto (RIO) and Vale (VALE) were all awful -- just worst in show. But then comes the 50.3 in China and you get some of the most amazing pin action possible. Suddenly the reversal is in place. Everything that has been sold or, more likely, shorted, gets reversed. The momentum switches and many people are caught looking dramatically underweighted in companies that do business in China. 

 

Europe's been such a disappointment, but when you see an expanding purchasing managers report, you can buy everything from the European banks to the manufacturers, including those American companies with big exposure.

Think autos. In many ways, the two PMI numbers were more important than the U.S.'s own PMI, which came in at a very solid 55.4 because China and Europe are so important, say, for a company like Ford (F). How important? Well, for Ford, the foreign markets were able to trump what had previously looked to be a disappointing July, going by domestic sales. Of course, the swing here is trucks, and Ford makes a ton of money on trucks.

 

The global strength pulls up oil and the other stocks that would most likely be down otherwise, given the terrible numbers from Shell (RDS.A) and Exxon Mobil (XOM). Again, it's pin action, this time off of a rising commodity.

 

It will lift aerospace from its momentary doldrums, too. That's because China and Europe are huge sources of growth for the airline business, and both had become suspect.  

 

Until Thursday I would have put both China and Europe in the category of headwinds. But the bears now have to be worried that we'll get more positive numbers from overseas, and that these will proceed to become tailwinds. Very few managers are set up for that. I know this because Action Alerts PLUS pretty much is set up for it, and it has cost us a couple of percentage points of performance as we've waited.

 

I keep talking about a lot of ways to win. But I didn't think that Europe could be a source of strength, and no way did I think I think that about China. Nevertheless, the pin action off 50.3 is driving a lot of these gains, and they are gains that most hedge funds can't grab without radically switching their positions. That is exactly what I think is happening right here, right now.

 

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 F, VALE and JOY.

 

 

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66Comments
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Gee Cramer the US economy is still on life support more so than it was in 2008

 

zero percent interest rates

 

$85 billion a month being thrown into the economy from the Federal Reserve

 

a bump of 1 percent for GDP thru a recalculation of the GDP numbers adding nothing to the real GDP but bumping the numbers

 

that means the GDP only grew at 0.7 percent instead of 1.7 percent and then add in the werid math of adding 162,000 jobs dropping the unemployment rate to 7.4 means that 162,000 is 0.2 percent of the work force which means the work force is only 81 million Americans working

 

We are in deep trouble Cramer and you believe the BS they are putting out about the economy

 

Take out the $1.5 trillion US deficit numbers from GDP and we are negative about 9 percent still in a recession

Aug 2, 2013 2:11PM
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The one fact no one can deny... forcing sub-par wages on the general public without bringing the base economy in line has made it impossible to work, go to work, feed a family or even have one based on the net pay you get. Twenty-something young adults are quitting and moving home. Not because they have no work ethic, because nobody gets paid enough to deal with the psychopaths in management roles they fail miserably in.
Aug 2, 2013 10:46AM
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The bears have this hands down Jim.  DEBT is the 1000 pound gorilla that will tug at the heart and purse for at least a decade to come. America has been Santa Clause to the Asian Rim for the last 15 years or so.  This is thinning as the arbitrage continues.  You cannot support the American economy on burger flipping and soda jerking.  Economic reality has been polished by so many different mouthers only a few have the savvy to see through the curtain for what is really happening.  For my belief we are but 1/3 through the Arbitrage that is called Globalization.  The New World Order types signed us up such that the world wide economy leaves the American middle class maybe 1/3 as well off as 35 years ago.  To think China and Europe will reciprocate with America for this sacrifice is just wishful thinking.  The conundrum of the elites giving away the livelyhood of the American middle class to look acceptable to the rest of the world will be argued about for many many years.  I'm sure you will feel little pain as this horrible denial of American importance by its' phoney leadership continues to tell the fake story of how concerned they are for Americans.  If you find it hard to believe ask how many jobs bills any one in D.C. have recommended in the last 5 years.  The answer of course is zero!  We will see many stand up for wage increases.  These will result of course in nothing because less than nothing is the intended result.  So the result in China and Europe will become much more of a problem as America becomes even less able to spoon feed them with that rich cheap American blubber.  Can they stand on their own? This is the question and I am never confident the American value system can be implanted on such different economic systems as China and Europe.  It is my belief the American Capitalist is now gone forever and that evil Marxist Socialism has filled its void.
Aug 2, 2013 3:15PM
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Too many of the jobs boomers are retiring from are disappearing through attrition. Productivity through technology takes many of those jobs and other times the lousy managers just pile the work on who ever is left and hire a temp part time to take up the slack.

Aug 2, 2013 3:58PM
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It always seems to boil down to lawyers, insurance and politicians. The companies don't want to hire full time people because it exposes them to a lot of risk associated with lawyers and insurance. Easier to get rid of a temp than a permanent hire. Where is the middle ground? We have protected ourselves right out of work. We are the steadily diminishing pebble stuck between the rock (CEO) and hard place (lawyers, insurance and politicians).
Aug 2, 2013 10:36AM
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with the turnaround generally happening here, perhaps it will occur in europe.  however as long as benny keeps printing money, no one know what will happen once that stops.  will it produce another recession?
Aug 2, 2013 12:47PM
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Jimmy, when you Rob Peter to Pay Paul, there will always be temporary Rays of Sunshine. That's hardly means the Storm isn't coming. It is.
Aug 2, 2013 4:24PM
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You Canadians, get too many Holidays, eh....Provincial Day my azz; What is that ??

 

Today is our National Beep Baseball day(World Series)....What the hell is that...??

I never knew they had a Day for it.

 

I actually have help coached and umped(twice) in a Beeper Ball Tournament...

If they get mad at you and start kicking sand in your face; You step away and move sideways quietly.

Because the players are all Blind, they don't know where you are at...We used to have a lot of Fun.

My Favorite Team, was one that had a Rally-Recording of "3 Blind Mice", they were a hoot.

And can they ever drink beer....THEY DON'T HAVE TO WORRY ABOUT DRIVING.

Aug 2, 2013 2:42PM
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Yes with "boomers" retiring at roughly 10,000 per day and many others dying;

There will be jobs for the up and coming...

Sadly it's the way it has always been; The way it will always be.

 

But with Capitalism and Corporations functioning as they are, and with their projections;  They have turned Americans into "wanting individuals" willing to accept what is offered.

And the once great "Middle Class" will suffer for it....And tend to dwindle in numbers.

 

I only hope the "boomers" fair well in their retirements as hoping we do also..

But many made mistakes in the "downturn" or got bad advice, others did well...And should do fine in their final years...They have given all to make the Country what it is.

 

Aug 2, 2013 4:32PM
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Jubak and Mirhaydari don't post articles as much as they used to.  I think we upset them.  At least Cramer has the nards to show up.

 

I'm not sure if this is a bull market.  I'm not sure if the markets will ever retreat.  More and more I feel that oversold securities are just a function of inflation, which means the per share prices will always go up.  Forever.  Unless, maybe, like the United States files for bankruptcy or something.

 

This makes finding an entry point for buying a security almost impossible.

 

 

 

 

Aug 2, 2013 3:41PM
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Yes with "boomers" retiring at roughly 10,000 per day and many others dying;

There will be jobs for the up and coming... Sadly it's the way it has always been; The way it will always be. ---------- REALLY? Would that be 10,000 + x 30  or 300,000 a month? -  And we only added  160,000 this month with 3 million out of work and all the college grads looking. Hum...

 

Aug 2, 2013 2:11PM
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Yes a nice little rally in the last couple hours, could make us well and we might have a respectable week, without much worry. But I'm sure next week will more than cover our butts.

Having said that, all remains to be seen; But our confidence has not drained, and we still consider there is more upside to this somewhat languishing bull market..

 

We are not Greece nor Italy and others...

We are willing to work and earn our own way, at least a great percentage are; And when the "freebies" run out; Others will be made to, or have to contribute to the greater good.

Albeit in a much lesser way then what they expect, because the ambitious have already taken the initiative to make their lives better...Those that hesitated, may deserve what they get.

They are our Grecians....

Aug 2, 2013 12:59PM
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Just more cramer speculation .....and since he refers to his action alerts portfolio why is there no returns info on it .......

Surely even basic rigor in journalism should prompt him to include this data!

If he was writing a football story and referred to his own play calling at let's say the Bengals, wouldn't their win/loss record have some relevance.

This man is a clown and a conman ....nothing more !
Aug 2, 2013 1:53PM
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Well CGT...You may be somewhat right, but I don't think there is anything drastically wrong with the Jobs Report...It's slowly falling in line as expected...And we have been forewarned for years about it.

The Lagging Indicator..

But Administrations don't create Jobs and Recoveries....Congress does, with urgings from the top.

We have a sorry bunch off assets, sitting on their azzes, while America burns.

It's getting and going to get better;  The timeframe is the true question...We know HOW, we want to know WHEN.

 

The Markets may be up a little this week, but our FMV of assets across the board, maybe not quite the same...?? Coalminers, Pipeliners and Goldminers have been a little drag on the overall.

Maybe we should consider getting rid of all the "INERS"....??

Aug 2, 2013 1:43PM
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Value investors look like geniuses when compared to everyone else. In 2008, when value investors got busy buying (I'm talking about those who bought companies with inherent, fundamental value then being under priced by the market) while everyone else was selling, they made fortunes within what now turns out to have been only five years, while everyone else was selling. Now, they're sitting on fortunes and refraining from buying the over-priced stocks while dumbos think this is the time to buy. Amazing.
Aug 2, 2013 5:12PM
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Sadly one hope for jobs is China doing so well, and wages there rising so high that the math no longer works.  High oil prices could speed this up and perhaps make other low cost nations cost too much. 
 Infrastructure and energy can help a little, but they can't hope to replace the millions lost.  Advanced manufacturing is another bright spot, but a factory that used to employ 3000 now has 200 and has the same output.  200 good jobs mind you, but it's the 2800 that will never come back.  I guess that's the problem with my first statement, if manufacturing jobs come back they won't be in the numbers that were lost because of automation. 
Aug 2, 2013 1:58PM
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When all you look at is data that is being challenged at every juncture, an assertion of recovery is as reliable. Dial anyone in Greece, Jim. They burned their banks down, kicked out their government and sent paper and button pushers fleeing to Germany. Iceland threw it's bankers out, regrouped and has economic balance without recovery. Italy is... well, being Italy. If YOU want to invest there, go ahead. Spain and Portugal have never resolved their bank integrity issues and just flop from bail-out to bust. In nations we hear little about... Poland has no retail but it has a viable underground supplied by friends and relatives in America that all but guaranty no possible recovery without reconciliation. Germany and France have elections approaching, the Central Bank recommended puppets are running last and the lead candidates are wholly unpredictable. I said it in Jubak's article-- unless China finds an internal customer to consume all that cheap surplus, it will implode. The rest of the world doesn't want it and if things don't improve with Central Bank manipulation all over the world, China could see cargo planes and ships dropping that economy-stopping crap on them. It's impossible to stage a paper printing, button and paper pushing recovery. Now we are in a pickle because able and capable people have been out of the workforce too long and will KILL the first moronic MBA degree who thinks they can train without ever having done the job or lived in the conditions put on the rest of us. I'll say it again... where do you go once you've screwed the whole world AND close the banks, end all Central Banks especially the Federal Reserve and get RID of Wall Street. It's currency, it was used for terrorism, there's a War on Terror, We the People are victims, They the False Elite can be corpses if they don't snap out of the Kool Aid funk over this weekend. Die psychopaths die!
Aug 2, 2013 3:09PM
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  Good post Tog,   The name of the game is effort. Have 12 grandchildren some still in lower schools one At SMU others already been to tech school or college, LN.s RN,s radiology techs etc. All have jobs. Not always in their field of learning, but they have learned you have to be flexible. The radiologist could not find a job locally and did not want to move away. She became a head manager at a Papa Murphy were she worked to help pay for her schooling. Not the best pay but not bad for this area, 401, paid vacation, bonus, The point being these youngsters have to be flexible and stay the course instead of sitting around smoking pot with the whoa is me group. They will grow from there experiences and become more confident in them selves. Good investing!
Aug 2, 2013 6:11PM
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Thank you Classic Lady.  Interesting stuff.

 

I don't know TOG.  I've got $8,500 in the Schwab account to invest, but cannot find the right price.  COP is too high, PSE is too high, PNW is too high, LUV is too high, SDT is too high, GAIN is too high.

 

I'd go as far as per share price at 10 times earnings per share, but not more.  I think Veteran Lender's rule was always 7 times.

 

If CD's will crawl back to 4%, I'll drop the money there and then go fishing (or casino).  But the last CD I picked up was one month ago at 3.7%.  Guess I'll just have to wait for the government to stop the bond buying.

 

 

Aug 2, 2013 5:09PM
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Classic....I hope you are okay ???  I wanted to send new coordinates for the money drop...

 

We live on a major flyway between two large hubs...

So they will have to practice a few drops for windage and drift to hit our targets...

Most fly over us at 20-25,000 feet, smaller craft lower; And crop dusters buzz the barns.

But we can direct them in, when we know they are on the way.

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