Confidence climbs as euro ends free fall

The euro's trajectory isn't broken, but the velocity of its decline is. And that's enough to rebuild both confidence and capital in the market.

By Jim Cramer Jun 3, 2010 10:15AM

Jim CramerBy Jim Cramer, TheStreet


Why isn't some hedge fund, or some group of hedge funds, out there trying to crack the euro? Or is there one – or several – and the euro has hit a floor now that there are so many more bears than bulls on it?


A very complex and difficult dynamic out there has suddenly shifted, allowing us to think about individual stocks again. Oil has bottomed – thanks for that great call Dan Dicker – at $70. The economic data in this country has been unbelievably strong, as Doug Kass points out, and the possibility of a terrific employment number on Friday still exists, stoked by President Obama's words Wednesday. The Chinese stock market seems to have stopped going down, and weaker numbers from China are now being viewed positively as a sign of a soft landing – although that view has not been articulated on TV yet, other than on my "Mad Money" show.


So we have a barometer of economic strength – oil – saying things aren't so bad, and we have a major economy that gets better and better.


But none of that should matter, because just last week we were ready for major bank and sovereign nation failures; they haven't gone away.

What has, though, is the free fall of the euro. And we know it. We all know it. The trajectory of the euro isn't broken, but the velocity of the decline is, and that may be what's really cheering the market. You break the velocity of the decline and it allows everyone to breathe. We can ponder the restructuring of Greek debt – so ably detailed Wednesday by Tom Graff and Mark Chandler – and we have time to ring-fence bad debts to save banks that are too big to fail, because we are not in such a fluid nightmarish situation. All of this occurs because the euro isn't in free fall.


Remember, it doesn't matter why it isn't in free fall. Too many shorts? Government support? International Monetary Fund guarantees? It doesn't matter. The fact is that it is happening.


That vacuum allows good corporate news to be valued again.


I know the bond spreads among European countries had been my gauge of whether the "plan" is working. But the "market" is more simplistic than that. The fact that the euro has been stuck here momentarily is enough to rebuild not just confidence, but capital, too.


Or, in other words, when you put Europe in a box, when China stops descending, when Congress goes quiet, you get a pretty decent market for a couple of days.


Unfortunately, those conditions are like a live, active volcano. You don't know when they are going to change or to blow. But at least you have time to set up disaster plans and evacuation strategies, and that's exactly what is happening now as the euro's decline, and therefore the volcano plumes, are kept in check for the moment.


Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.


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