Dark clouds on the horizon

Given these developments out of China and Europe, stocks may indeed have gotten ahead of themselves.

By Jim Cramer Oct 23, 2013 9:54AM

TheStreet.com logoBusinessman with face down on desk © Tetra Images, Tetra images, Getty ImagesAre China and Europe worried about overheating already? This rally's been based on the two pillars of Europe and China getting better, along with the U.S. muddling along in a way that's neither good enough to get revenue going nor bad enough to cause tightening.


But last night the Chinese let the money-market rate jump while at the same time the European Central Bank said it would offer some much more difficult bank stress tests.


I understand both moves. The Chinese economy's gotten hot again, and the Communist Party wants a long, sustained increase in gross domestic product, not one brought along by speculation. The European banks were, frankly, never fixed. If you look at their ratios vs. those of the U.S., they are pretty insanely undercapitalized. That's particularly true of the Italian banks, all of which would have been shuttered by former Treasury Secretary Tim Geithner a long time ago if they'd been U.S. banks. If Europe does a real test, there would have to be an awful amount of equity raised -- and the markets, which have been red-hot, could stumble.


Plus, if you are a European businessperson, you have to be aghast at the strength of the euro. Not only is the currency not going lower every day, but it now feels as if the euro is becoming the world's reserve currency. That's courtesy the rejectionists in the U.S. Congress, who were willing to throw away our nation's full faith and credit rather than just try to win a national election or take over Congress themselves.


I still do not think anyone in Washington is really aware of the damage the rejectionists have done. You know why? Because people are still acting as if it was "everyone's fault," and not just those who were willing to walk away from our obligations. Remember, I favor pushing back Social Security and putting through real cuts in Medicare, including negotiated drug benefits, and I favor lower taxes to jumpstart growth, and I favor less regulation. That's because, as a small businessman, I know how insane it is out there. We have outcomes management numbers for medical care that we don't even use. There is so much out-of-control spending by the government in Medicare that it is ridiculous.


But that's what needs to be attacked -- not our lenders. Now, because the rejectionists suggested to our lenders that we might default, the money flowing into the euro is pretty breathtaking.


If Europe slows down, the recovery in China will slow down -- hence why the metals are having a harder time after a nice little run. Europe comprises 25 percent of the Chinese export market, and they turned out to be much more joined at the hip than we'd thought. If China can't export its way to growth, and if the Chinese banks are going to tighten credit and the European banks are going to be forced to retain more capital, you can see a world where stocks have indeed gotten ahead of themselves. You could even see a world that is calling the tune in the U.S.'s own bond market, and that could be one more reason why our rates went down yesterday.


All in all, we aren't doing well enough in this country to lose China or Europe.


Ironically, on the night when Spain at last came out of recession -- on a night when, at last, companies were revising up their iron and copper forecasts because of China -- we got the first dark clouds on the horizon from the overseas leg of this magnificent rally.


Random musingsBoeing (BA) has expanding margins in huge super-cycle. Caterpillar (CAT) still can't get it right. I like the comparison between the Corning (GLW) deal and the Verizon (VZ) deal -- can you believe where Verizon is? I still believe in Apple's (AAPL) tablet strategy and the stock has upside. Taking side of the father in the Netflix (NFLX) dispute. Lumber Liquidators (LL) is absurdly good.


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Oct 23, 2013 10:23AM
Huh? Stocks "might" have gotten ahead of themselves? Today's headlines tell us- who lied, died, was killed, stole, cheated and even a White House staffer fired for Twitting. What they don't tell us- are who got hired after long-term unemployment, who hired them, who trains, who sells anything that constitutes actual sales, who is growing by popularity instead of QE funding, who invests here and not offshore, who doesn't have office suites filled with sports pool fools, degrees than cannot function without direction from apps, and who is helping Main Street stand back up.
China and Europe apparently recognize overwhelming corruption. Perhaps we need to be talking to them about rent-an-army that levels Wall Street, the Federal Reserve, DC and every inheritor that lives a False Elite lifestyle, having never earned anything in their life. 

Come on America, time to destroy the financial sector and rebuild- before there is nothing left to recover us with or for. We OWE $700 TRILLION in derivatives! We NEVER saw a penny of it!
Oct 23, 2013 10:28AM
This happened too suddenly ... something stinks!
Oct 23, 2013 10:36AM
Finally coming to the party Jim?  Many have been calmly sitting on the side of the road watching the train running down the dead end track.  The world is composed of individuals that each have this little engine that they all share.  Life, liberty and the pursuit of happiness is an endimic goal of each of us.  You mess with that you mess with mother nature. These Arrogant Internationals at the behest of the even more arrogant wealthy class really don't see the little people as having any needs like the above described.  Oh so hard the lessons of life we all must learn.  Until individual needs are "accomodated" in these institutions we will see strife and dysfunction like what is growing now throughout these developing countries.  In time I suspect these international organizations will get the boot and all the time and money American citizens have been misled as investments in their futures will end up a tragic debacle.  JMHO
Oct 23, 2013 11:00AM
It's funny how every time we have some kind of movement going that is not Democrat or Republican the divide in the USA kills it. OWS and now everyone screaming about the Tea Party. The politicians sure know how to herd the sheeple.

Too bad the US wasted S.S. and medicare tax revenue on W.W. II , Korean War, Vietnam War, Iraq War I, Iraq War II, Afganistan War, Libyian War and the war on terror.


Social Security would have an extra $8 trillion and medicare would have an extra $4 trillion in their war chests.

Oct 23, 2013 10:40AM

Imagine this, a newly manufactured crisis to manipulate share prices. These issues have been obvious for quite some time, but POS media need something to stay relevant. I'm done reading this garbage.

Oct 23, 2013 10:41AM
" and the markets, which have been red-hot, could stumble." ..... The fire seems hot when the tender is burning but if you don't add serious wood it goes out fast. QE is just continuing to add tender.
Oct 23, 2013 11:09AM
Jimmy, just the other day you were saying things were turning around when clearly they were not. Not you flip the script, again?
Oct 23, 2013 4:11PM
DIE Bank of America DIE.......... lol
Oct 23, 2013 1:29PM
Moral(e) of the Story:

Reject the "Rejectionistas" come November 2014! 
Thats it in the nutshell..  Dis-employ the old guard
as well, and that includes Pelosi, Boehner, et al.

Force Congress to listen to us.  Yank their cords,
people.  They may have the Industries' incessant
money-stream to wade in, but they will always
require our lifeline-vote to keep them from drowning.

Nuff said...off to Farmers Market, then chores. 

OH and PS to chatr....While I like what you said
last week about 'nuking down' the computer
in order to effect a 're-start', I must advise...there
is a better way;  it includes reworking each sub-
system to remove the contaminants (viral items)
each time until the entire system has been
rehabilitated.  IT IS Possible, for the like minded
who wish to use patience and skill in the re-set
since some of us prefer to keep the good stuff
while evicting the terminal toxins. 

Happy hunting!

Oct 23, 2013 10:58AM
Sell everything, get the Mason jars ready, buy bullets, where's the tin-foil.  ??
Oct 23, 2013 10:54AM
"cast a sudden pall ", oh really...Just when we (I) thought everything was hunkey-dorey...
Oct 23, 2013 2:08PM
It's an exclusive CNN story Little Beav.
Oct 23, 2013 1:42PM

Did Sebelius set the president up to look bad or is she throwing herself under the bus for him now. Its got to be one or the other folks. If she stood around and watched him speak about how wonderful it was when she knew it was broke....... then it's A ....... If he really knew then it's B


Maybe she was afraid to say anything......... maybe she was hoping for Devine intervention.

Oct 23, 2013 12:10PM

Jim Cramer touts himself as a small business owner? I guess he just expands the definition of small business owner to include people making millions and millions of dollars a year with trust funds and huge retirement accounts. Of course he favors screwing everyone on Social Security INSURANCE. Even if it is solvents and the bank funding the overspending in the US government right now.


This from the guy who didn't know the financial crisis was upon us? I was kicked over and over again for calling the financial failure years in advance and I only had 2 courses in Economics at Columbia. It was obvious that when the stock gurus and banks run financial policy it can only end in disaster. It is the fox watching the chicken coup and they are still at it. The stimulus that was to go to roads and infrastructure has instead gone to bailing out Wall Street and big business.


And the depression goes on because Bernanke's ridiculous policy did not work during the Great Depression and it does not work now. Bernanke said early on that the reason that stimulus didn't work for the Great Depression was that they did not stimulate enough. And now 6 years later there is no change and no end in sight. Obviously Bernanke is a foolish historian who decided to repeat the past and expect a different outcome.


Why not let capitalism work and just stop manipulating the country. If GM needed to be bought out of bankruptcy then let it. Remove all rules from Insurance and all protections from the health care industry and watch prices fall and the crisis end. Open medical schools to have a greater supply of doctors and dentists and watch health care costs come back to earth. Stop paying public college teachers $250,000 a year for 8 months work and watch education costs drop.


The problem is not because the public overuses services but rather the lack of capable health care providers. The health care industry killer 112, 000 patients last year with medical mistakes. Obviously doctors are not very good at their job. Why aren't they held accountable? Why didn't anyone go to prison for their part in the financial meltdown?

Oct 23, 2013 10:27AM
"I understand both moves. The Chinese economy's gotten hot again, and the Communist Party wants a long, sustained increase in gross domestic product, not one brought along by speculation. The European banks were, frankly, never fixed. If you look at their ratios vs. those of the U.S., they are pretty insanely undercapitalized. That's particularly true of the Italian banks, all of which would have been shuttered by former Treasury Secretary Tim Geithner a long time ago if they'd been U.S. banks. If Europe does a real test, there would have to be an awful amount of equity raised -- and the markets, which have been red-hot, could stumble."

How interesting... the Chinese Communist Party wants legitimate Capitalism and our Geithner would shutter Europe's banks and reconcile, not re-opening them until verification and validation were the processes and procedures of reliability. Aren't those the EXACT SAME THINGS most of America has been asking for out of Wall Street. Recover Main Street, close Wall Street. Bet we get what we ask for in recovery. 
Oct 23, 2013 11:00AM
I would like to sell sh!t to the Government, I even know where to start....
Oct 23, 2013 4:53PM

Yes Vineyard, may get his wish....Die BofA Die.


And no, I'm not going to post # 100.

Oct 23, 2013 1:22PM
What happens to the people getting cancelation notices on their insurance if they can't get signed up very quickly on ACA? What if ACA does not work out........ Do those people get "do overs" with Florida Blue Cross"?
Oct 23, 2013 12:25PM
Absolutely nothing wrong with China and EU fixing theirs. Now how about us fixing ours?
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