Spending cuts are a major earnings theme

Companies and consumers are sitting on their wallets, and we should not be surprised.

By Jim Cramer Jul 12, 2012 9:52AM

What the heck happened to spending? Everywhere we turn, we see that spending has been cut. Wednesday night we looked at Adtran (ADTN), a run-of-the-mill supplier to the telcos, and it is talking about a big decline in spending by the companies. That's something, because they always have to spend to keep up.

 

We heard Wednesday from Burberry and Levi Strauss that people aren't spending for either the high end or the low end, as Burberry's goods cost a ton and Levi Strauss' don't.

 

We got some data Wednesday night on computer sales that show a dramatic slowdown in ultrabooks. Nomura says this will sting Intel (INTC), and we know it has already hurt Advanced Micro Devices (AMD).

 

Infosys (INFY) is talking about a dramatic slowdown in IT spending.

 

We heard from H.H. Gregg (HGG) that spending on video -- think televisions -- has taken a big dive.

 

And finally, we heard from Supervalu (SVU) that consumers are tight-fisted. That's a supermarket chain, for heaven's sake.

 

This is all very sudden.

 

It almost seems as if it is from nowhere. But is it, given that Europe is in endless decline, a seeming death spiral?

 

Is it, given the lack of anything positive coming from Washington, D.C., including the Federal Reserve, whose members are split and want more data? Congress is a joke. Neither presidential candidate seems to address the notion of growth directly.

 

Is it, given that we have no idea what the tax scheme will be next year?

 

Is it, given the slowdown in China, a slowdown that I think will lower growth to 6%?

 

Is it, given that Brazil and India are just floundering, although at least Brazil is cutting rates?

 

Is it, given the sudden spike in crop costs that undoes so much of the deflation positives that we have seen from energy?

 

Is it, given the currency turmoil that is playing havoc with earnings?

 

Is it, when outfits like Cummins (CMI) see worldwide softness?

 

Is it, when Airbus one of the two big aerospace players, is saying that jumbo jet demand, seemingly endless, is now cooling?  

 

Nah, nothing is really surprising except the fact that the stock market hasn't fallen apart.

 

The difficult issue we have at this very moment is how much of all of this sudden negative news is in the stock market. Cummins is a spectacular example of what could be the case. We all know that trucks were weak. Even Alcoa (AA) had just told us that.

 

We all see what happens when Supervalu blows up and suspends the dividend.

 

We see what happens when an Infosys slashes its outlook.

 

But what happens to the others that don't issue profit warnings? What happens to the companies that are doing well, particularly the non-cyclical companies?

 

I think what we are seeing is that the industrial segment of our market is getting trashed, and trashed endlessly because of all of the above concerns.

 

Now technology has become worrisome, although the negatives seem to be not affecting the stocks of Microsoft (MSFT), Oracle (ORCL), Apple (AAPL) and Intel (INTC). (Microsoft owns and publishes Top Stocks, an MSN Money site.)

 

Financials? Haven't heard from them yet. If spending is slowing, though, it is hard to believe that they can have all that much good to say.

 

Minerals are awful, but Chevron (CVX) cast a pretty good light on things Wednesday night.

 

It's mixed. And maybe that's the key to what is happening right now in the market. Some pockets of non-cyclical strength offset by cyclical weakness. Maybe that's how the stock market stays up here.

 

Right now, though, if you had to chart things out -- and the charts are very much in control -- you have to think that things break down, not up.

 

I reiterate that the industrials, the techs and the financials are not the places to be.

 

You can trade them but you can't invest them.

 

But the higher-yielders, the industrials north of 4% yield, and the counter-cyclicals?

 

They remain the place to be. Maybe even more than ever.

 

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 CVX.

More from TheStreet.com

 

 

28Comments
Jul 12, 2012 10:09AM
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Newsflash...companies have not been spending for the past 5 years or so and are just cutting jobs, closing plants, outsourcing jobs etc. to make the bottom line to give the illusion all is well.  Very few companies today are making their numbers by selling more products, services etc. but instead continue to cut spending and use slick accounting practices to make their quarterly numbers.  How many big companies are actually creating good paying full-time jobs??  Very few if any...  Plus analysts continue to lower their earnings expectations for these companies so that they have a better chance of making their numbers to once again give the appearance that things are getting better.  Europe is a disaster and here in the US it's not much better and that's the Truth!!
Jul 12, 2012 12:52PM
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Cramer, people are waiting because Obama has created the United States of Misery.  His character and policies have wrecked the economy.  To be prosperous is to be penalized.  So tell me Cramer why should I work harder to make more money when it will be taken away.  And without more money why would I spend?
Jul 12, 2012 1:03PM
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I agree with TruthSeeker below - most US companies are playing with the books and it's employees to show good numbers. What puzzles me is why the unemployment numbers remain unchanged in that companies continue to lay off and/or do not expand. UID apps were supposedly down but that could also mean that laid off workers just didn't apply, not a reduction. And what about all those who have run out of UID benefits and/or those who just gave up looking - I  wonder how many of these there are? Unemployment in the US is not 8.2% but much higher (even Bernake admitted this) and it definetly is here in CA
Jul 12, 2012 2:35PM
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Companies cut spending...............Really Jim. Wow can't figure out why I lost my job & you still have yours ?
Jul 12, 2012 1:54PM
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To the Government, its like the theme from the movie The Sixth Sense.  Most of the Western industrialized are economically dead but they don't know it.  Or perhaps, they do know which is why the UN wants to censure the internet, limit guns, and support nation-initiatives to limit freedom.  Maybe, its just my imagination but with a majority of Western nations in a debt crisis, U.S. states and municipalities technically bankrupt one has to wonder.  Would the central banks need to keep interest rates near zero and expand their balance sheets with printed money if things were getting better?

Jul 12, 2012 1:54PM
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Austerity measures, spending cuts will be deflationary. Deflation cannot be avoided after credit inflation runs it's course. Google for DEFLATIONARY CRASH KONDRATIEFF WAVE to understand the problem the world is facing. Great Depression is going to pale in comparison.
Jul 12, 2012 1:03PM
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Hopefully this may be of value. Over the years I have invested in as sound investments with a decent return as I could. CD's at twelve down to six percent. Annuities at ten percent to today four percent. I am in Ishares paying monthly dividends and corporate bonds paying from five and a half to seven and a half percent. Pretty much I am a very conservative investor. Investing is for the LONG haul not jump all over the place to make a killing. Just saying.
Jul 12, 2012 3:43PM
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Everyone knows the Economy is bad, real bad, there are no jobs for millions of people, this year there is less hiring than in the past, prices have gone up, and Everyone knows, the fiscal cliff is approaching very soon, and you better have something saved up,to survive! People know government cant fix anything, as far as people are concerned, the end is coming, very very soon. No one cares about Wall street anymore, there the ones who got the whole world into this mess to begin with.

You wont see consumers spending a dime, unless it is really needed. Every company going to take big big losses from now on, you have not seen the bottom yet, its only going to get worse for a long time to come. And jobs are going to be cut again around world, as bottom lines are going to be very bad now. It starts all over again! And winter is just around the corner, when everyone gets laid off, except for temp hires for holidays.

Hold onto your Hats, you aint seen nothing yet, the Rewind Recession has begun!

Jul 12, 2012 2:15PM
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blame obama, too busy sucking the fat out of everyone, you wait till january if he is our president, people will be taxed so bad they won't buy crap. wait to the healthcare kicks in, crap, no one will spend money, gas in CT> went up 20 cents since the day after the fourth, oboy, obama gave us a break, bet no one spent much when they went on vacation, i didn't go anywhere, screw him and his **** kissing team, they don't care they are all million airs.

what pisses me off is they cut the price of fuel, jacked up the tax in CT. 5 cents for trucking, now they can right it off at the end of the year but the consumer gets screwed at the stores, thank you Malloy, the white obama, probably brothers, they had to put two refineries back running to stock pile fuel and then shut them down to raise the price of gas, keep the damn things running and gas can stay around 2 bucks a gal. freakin government has to go

 

 

Jul 12, 2012 12:50PM
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Mr.Cramer this info does not sound like it came from a Harvard graduate
Jul 12, 2012 4:24PM
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Until we make some major restructure changes of our economy, our economy is going nowhere or maybe worst. The must important thing we must do is take care of America first. We will not like it.

1. We must reduce the debt - bankruptcy, pay it off - whatever. Both government and consumer debt.

2. Stop inflation. Keep the inflation rate between a deflationary .5% and 0% inflation. Our money must have value. If we do this money will move to America.

3. Use tariffs to promote free trade. Use the tariff income to pay off the debt. (this will increase America employment.)

4. Take taxes off business and reduce regulations on business. ( This will increase employment)

5. Reduce regulation on the energy industry. Also, remove subsides. Drill baby drill.

6. Final consumption sales tax, the only tax. Give the American people the direct right to decide what we buy though government. (Let the people cut government spending.) everybody pays, no item exempted.

7. Reorganize our educational system from bottom to top. Education that increases employment in a rapidly changing technical world.

We are not going to like what we have to do to restructure our economy, however, we have got to do it or live in this economic crap hole for the nest 25 years or more.

Jul 12, 2012 3:47PM
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Yes, Congress is a joke.  They have forgotten us.

 

Yesterday in the afternoon, all of the comments disappeared from Anthony, Jubak and Cramer.  Wonder what that was all about.

 

Yes, industrials above 4% - good.  California munis - bad.

 

I wouldn't expect any growth.  For the past four years the wife and I have talked over every dollar we spend.  She only bought a new Ford Edge because they gave her zero percent financing over five years.

 

I needed a new pair of Fiskar pruners for the yard, but I spent 15 minutes in the garage sharpening the old ones with a file.

 

I would not listen to what Airbus says.  If Boeing can refit the 777 with carbon fiber wings, Airbus is dead.

 

 

Jul 12, 2012 12:48PM
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and yet another day of his recent "all american" pick of AAPL,COST,ETN,CLX unable to even come close to out performing the market

 

his "rigor" lead his followers to believe these 4 individual stocks could out perform the market

 

sadly they are lagging badly.....further proof that his crap doesn't fly

Jul 12, 2012 3:28PM
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As long as Americans keep buying goods that are made overseas by American companies, we will never have a good economy again. In 1990 around a half million people were employed in the textile mills in the US. Today only around 100,000 are employed.
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If  we Americans want to invest in something that would give us great returns, we should consider the original tried and proven type of government, one under the control of the people. After all, who better to invest in than ourselves?

The Washington Establishment and its senior partner, the Fed, have failed (in an intentionally orchestrated plan)...they are hanging in for the last drop of America's blood with useless promises, financial charades, AND extremely clever propaganda.

Too many media types, like Cramer, just can't bring themselves to call a spade a spade...to them it's always the fault of an uncontrollable Foreign third party. B.S.!
Jul 12, 2012 3:23PM
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OBAMNEY 2012 :  Either way, WE lose !!!!!!
Jul 12, 2012 3:52PM
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Not sure what part of 'permanent compressive deflationary contraction' you don't understand, there Kramer, but it largely means the end of growth.....permanently. End and collapse of the dollar...permanently.... and a drastic reduction in standard of living...permanently. Are you seeing a theme here? If you can come up with another planet to exploit with lots of cheap resources, you know, like the one we dicked up here, then growth can continue.
Jul 12, 2012 12:51PM
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Is it me, or is Cramer dumb?  I can't believe he is employed.
Jul 12, 2012 12:43PM
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dividend protection?rigor? what a hilarious scam

 

no wonder this hack couldn't continue in the hedge fund busines and now sucks money

from the unwary

Jul 12, 2012 12:40PM
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yesterday the comment section was unavailable later in the day

today cramer's diarreah didn't appear until later

 

my hopes were that MSN might have removed this scam crook from the site

 

unfortunately it was false hope as MSN remains complicit in furthering the pump and dump

of cramer

 

another one of his "safe" dividend plays just eliminated the dividend and crashed

how many times will his followers think his dividend protection picks are safe?

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