Horizon is ugly, but it's a long way off

The fallout from another round of quantitative easing will likely be destructive. But there is room to make money in the meantime.

By Jim Cramer Oct 6, 2010 9:03AM

jim cramerBy Jim Cramer, TheStreet

 

It happened again Tuesday and last week, too: A couple of people on television saying I am a trader and they are investors, that I flit and they stay the course, that I go in and out, heedless of the future and the problems in store for our economy and our market from QE2 and the need to stimulate the economy in an unaffordable way.

 

I scorn these people. First, I have a portfolio -- you can look at it, it's Action Alerts PLUS -- where I try to pick stocks that can go up over time. More important, though, is that I am beginning to have contempt for the "pure" investors.


They use it as an excuse, I believe, to "stay the course," which is something that has definitively not worked over the course. Any course. Ten years. Twenty years. If there were any empirical evidence that staying the course worked and that trading didn't, believe me, I would have to challenge myself and my views with the test of profitability.

But I don't have to. Because staying the course means, basically, letting the market's "magic" work. Turns out there is no magic, though. It is all sleight of hand. The averages are awful. The average stock is awful. You can beat the market with better stock picking and with opportunism and with stocks that have good dividends that can grow. But you have to stay alert, stay active, be active.

 

Why?

 

Look at your screen. While others are dreading what happens in the future and fretting over higher taxes and the possibility of the destruction of QE2, I am trying to make money. Now. Because the money making is good. Because right now, the here and now, is generating extremely positive returns.


I am not going to apologize for those returns based on the notion that they can be wiped away a year from now, or two, simply by "staying the course." Maybe next year we will have to leave the course entirely, own nothing but Brazil or gold or masterwork paintings if that's what it takes -- they hold up in hyperinflation more than any other asset class, as demonstrated time and time again.

 

Seriously, I see nothing good on the horizon from so much stimulus. Nothing. It is destructive, and the destruction can be long-lasting. I see the bond vigilantes on the horizon because of our reckless spending, something that's so obvious when you look at the monstrously strong euro. If you stayed the course, by the way, you would be fighting that euro instead of trying to find the stocks, like Vale (VALE) and Coke (KO), that I am finding to take advantage of the change and not stay the course. All of this is on the horizon.

 

But here's a key fact that the myriad critics don't get: The horizon is 12 miles away. That's the curvature of the Earth's doing. That 12 miles is where I play. That's where I operate, and that 12 miles may be able to generate a lifetime of returns.

 

Go back to March 2009, when I figured out the downside was just a little below 6000 for the Dow and my colleague here, Doug Kass, introduced the concept of the generational low. Boy, the horizon looked terrible there:

  • Hundreds of billions in TARP losses and the threat of bank failures and confiscation.
  • A collapse in earnings from companies and a concomitant elimination of precious dividends that have led to outperformance.
  • A president who seemed hell-bent on cutting bank profits. Congress has proved to be an unwelcome abettor on that score.
  • A dollar that was going to soar so high against a destroyed Europe, one that would eventually wipe out the banking system as we know it.
  • A slowdown in China that would crush the U.S.
  • Rampant inflation from the printing presses.
  • Rampant deflation from the failure of the printing presses.

Yeah, all on the horizon, if not the horizon falling on us in the form of a Chicken Little routine.

 

Did it happen? Nope. More important, rather than recognizing that we were on the eve of destruction, I chose to make money on the eve. Made it before the 12 miles evaporated.

 

You could take it all off the table now, satisfied that you made it back to even and then some.

 

I am choosing to play further because the horrible horizon is, you guessed it, 12 miles away, and if we ever get to it, then guess what. I hope to trade out of it like I advised in September and October 2008, when I pushed everyone I could to get out.

 

Further, one last point: What do you think happened if you stayed the course and didn't trade, staying invested from October 2008 to October 2010. Guess what. You made nothing.

 

Sorry, "something" beats "nothing," and if you did the math, you would have sidestepped down 40% and picked up 50%. That's invisible to people who never traded.

 

It is a lifetime of performance to those who did.

 

Where do these people get off criticizing my style? Why aren't they laughed at?

 

I am laughing. All the way to the bank. The only place worth laughing to.

 

At the time of publication, Cramer was long Coca-Cola.

 

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.

 

Click here to follow Cramer's Charitable Trust trades.

 

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