Are the Democrats starting to get it?

Buried in yesterday's stock sell-off was Washington's recognition that the ailing economy needs some medicine -- and fast.

By Jim Cramer Jun 30, 2010 9:00AM

jim cramerBy Jim Cramer, TheStreet

 

It's not so bad. It's just bad enough that maybe something good will happen. That's my feeling about the U.S. economy right now.

 

It's not so bad, because we have ever-so-slightly falling jobless claims, better balance sheets for companies and lots of profitability, with some companies doing extremely well. But it's bad enough -- because we are not creating jobs and not seeing any loan demand -- that I think Washington will do something.

 

We saw the beginning of that on Tuesday, totally obscured by the selling of stocks. We saw a bank tax go away, we saw the rumblings of cap and trade put on hold, and we saw the makings of a breakthrough in extending unemployment money.


You know what these moves smell like to me?

Self-preservation. Self-preservation on the part of Democrats to get some jobs created, maybe even to stop the uncertainty about taxes and state that we will keep tax increases on hold. Why not? As someone said on RealMoney.com Tuesday, the government could issue 30-year bonds on the secondary market -- 2 trillion dollars' worth, I say -- and put it right to work putting people to work.

That's why I keep saying we are range-bound. The market is like a little baby with high spikes of fever followed by total joy and then high spikes of fever again. The Dow ($INDU) is like a reverse thermometer. The market shows the economy running a fever when the Dow dips below 10,000. Then we throw a massive amount of medicine at it, and the Dow rallies back.

 

I think the latter is about to happen.

 

Buried within Tuesday's horrible session were signs that the Democrats know that you can't just blame our problems on Europe or the banks; the problems are bigger than that. And they must be dealt with swiftly because, while the problems aren't bad, they are definitely bad enough.

 

Random musings: You have to change the way you think about this market, because high-frequency traders and the double- and triple-leveraged ETFs cause a lack of liquidity.

 

Once we know the market is down a percent and a half by 2:30 p.m., we almost always have to presume that we will lose at least an additional half a percent, if not more, as that illiquidity exacerbates the double and triple ETF rebalancing.

 

The same thing holds true the other way.

 

In other words, you have to accept the new world of ridiculous intraday extremes that these instruments cause. If a stock is down a buck and a half at 3 p.m., it will most likely be down $2 at the close.

 

Adjust accordingly.

 

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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