The market won't fall off a cliff

When the fiscal issues are resolved, get ready for a bull run reminiscent of the 1990s.

By TheStreet Staff Dec 19, 2012 1:26PM

View of Wall street icon. copyright Grant Faint, PhotographerBy Rocco Pendola thestreet logo

 

Last week, Jim Cramer wrote an excellent article for TheStreet about the Clinton-era bull market.

 

Other than reaffirming to "Dow deniers" that the move from 3,200 to 11,000 between 1992 and 2000 did indeed happen, this is my favorite part of the piece:

 

... the greatest thing about the bull market of the 1990s was how little Washington mattered at all. For all of the griping about the havoc that Democrats wreak on business, it was simply a benign time with a White House that was deeply wired to creating jobs and allowing the private sector to blossom.

 

Right on. Jim goes on to point out that, "Tax rates just weren't much of a factor in decision making, certainly not as much as the certainty of knowing what they were and what they would be ..."

 

For a repeat of the Clinton-era bull market, Cramer believes we need an environment where companies are comfortable spending and reinvesting without political overhang.

 

That's all good. And logical. And let's hope whatever needs to happen in Washington happens so corporate spending accelerates.

 

As I noted in TheStreet's Why Are So Many Big CEOs Complete Losers, however, fiscal cliff-related uncertainty doesn't keep Jeff Bezos from spending at Amazon.com (AMZN). And, on the other end of the spectrum, it doesn't stop entrepreneurs with families from paying for their own health care while they launch fresh startups.

 

It comes down to mindset right now. In large swaths of corporate America, you have companies sitting on cash and using gridlock in Washington as the reason. In many cases, I call it an excuse. At the same time, I understand and can respect the notion that you need to know the rules before you aggressively play the game.

 

There needs to be some context here, though.

 

I follow almost everything, but I most closely cover tech, Internet and media companies across sub-spaces. Behaviors in these sectors differ considerably from, say, what goes on in the industrials or at particularly blue chip firms.

 

If you're in tech, Internet, old guard media, new media or social media, there's no excuse for not spending. If you cannot find opportunity, there's something wrong.

 

Even though I fully admit to missing badly in the near term on Sirius XM (SIRI) (as I wrote on TheStreet), comments about outgoing CEO Mel Karmazin made a few months ago -- at least once to Cramer on Mad Money -- rub me the wrong way.

 

When asked about what to do with his company's cash, Mel said that because he did not see attractive acquisition candidates, there's no option other than to return capital to shareholders. While SIRI might have more life left in it -- after hitting $3.00 intraday Tuesday -- I still cannot get bullish long-term. I want to see what Liberty Media (LMCA) plans on making of satellite radio.

 

Will the company treat it as a singular space, doing things like streaming radio for the same lame reason -- everybody else is doing it! -- Meg Whitman gives for eventually building a smartphone at Hewlett Packard (HPQ)? Or will Liberty raise the stakes, making moves that draw the attention of media companies that act more like tech companies? If the latter comes to pass, $3.50 might be a conservative price target for SIRI.

 

Over the long haul -- I'm talking in Amazon years -- it's that second mindset that wins out, where companies go bold and disrupt large and multiple industries the way Amazon has. CEOs such as Bezos and Marissa Mayer at Yahoo (YHOO) set that tone: We don't care what's happening in Washington. We can't afford to waste a minute. There's too much work to do!.

 

Forget special dividend payments, stock buybacks and comfort with the status quo. If you do consider them, they should be secondary to growth. They might work in the short-term, but they crush souls and create Best Buys (BBY) in due time.

 

Once they no longer have the fiscal cliff as an excuse, I expect the best companies in tech, Internet and media to join the ranks of Bezos and Amazon and Mayer and Yahoo! They'll remove the conservative shackles and attack. Those who do not will get bought out if there's value or be left behind.

 

Don't be fooled: As I predicted weeks ago on TheStreet, a fiscal cliff deal will be made before the end of the year.

 

That will provide the market with sustained energy. Solid earnings led by Amazon and Apple (AAPL), along with some surprises and strong 2013 outlooks across spaces will propel equities even higher.

 

Once a deal gets done -- especially if it's a halfway decent one -- there's really no reason for a rally not to happen. No more excuses. There's opportunity out there -- tons of it -- and more than a handful of companies must exist who not only see it, but are prepared to leverage it.

 

 

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41Comments
Dec 20, 2012 3:52AM
Dec 20, 2012 12:47AM
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Sorry for that last post.  I'm a lazy idiot.
Dec 20, 2012 12:24AM
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The biggest reason the market will not go off a cliff is that Ben won't let it.  He will buy bonds, print money, even stand on the street corner and sing in order to keep the market propped up.
Dec 19, 2012 9:34PM
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"The market won't fall off a cliff... When the fiscal issues are resolved, get ready for a bull run reminiscent of the 1990s."
 
A) The fiscal issues can't be resolved without crashing.
B) There is an outrageous amount of fiat cash and no currency on Main Street. You grubbers would need to use your actual cash for investments without substance. Who loses first?
C) You obviously never read: Fiat Money Inflation in France- by Andrew Dickson White. READ IT.
D) There is a better chance that Americans will dismantle Wall Street with their bare hands than a new bull market.
E) There is a better chance that Americans will gather GOP and set them on fire to free us from an agonizing slow death by financial corruption than a new bull market.

 

 

Dec 19, 2012 8:32PM
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this guy pendola is obviously snorting raw hopium ....  the dude is high as a kite...
Dec 19, 2012 7:10PM
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IMO, we won't see another bull run like we did in the 90s - ever.  There are just too many things that are completely different now - everything from our aging workforce, interest rates, debt to GDP ratio, 24 hr news cycle, a huge increase in entitlement recipients, the strength of the dollar, and the list goes on and on.

One thing that occurred with the bull market in 90s was significant trading volume.  In the mid to late 90s, there were 400+ million shares of Dow stocks traded every single day.  There were even quite a few days where more than a billion shares were traded, and even some days with more than 2 billion.  Anyone looked at the volume on the Dow lately?  We're lucky to see 175  million shares trading hands now on any given day.  Today we saw just 149 million.

So, where did all this volume come from?  IMO, much of the bull run in the 90s was built on 2 things - tech IPOs and the newly created retail online stock trading.  Much of that bull run involved tech companies that had no tangible value and no profits.  You had a ton of companies trading at 20-30-40 even 100 times book value.  If you could get in the ground floor of an IPO, any IPO, you were just about guaranteed to make a ton of cash.  That didn't work out so well in the long run.  Also, the number of people who could and would buy and sell stock over the internet exploded with the advent of online trading platforms like E-trade, Ameritrade, TD Waterhouse, etc...  This allowed regular, everyday people with a couple thousand dollars to buy and sell lots of stock from their computer - something that wasn't available in the early 90s.  Clearly these platforms still exist, but less people are using them less often.  Remember the daytraders in the 90s?  Don't see too many of them around anymore.

These were but a couple of the components that all formed at the right time and combined to create the huge run up in the 90s.  The chances of another one of these "perfect storms" occurring again in the next couple of generations is pretty remote, especially in the USA.  Something similar will probably happen in Brazil or Indonesia before it happens again here.

Dec 19, 2012 5:59PM
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In the shot run Cramer may be right. I expect a big rally once a "fiscal cliff" deal is made. However, I expect the rally to be relatively short lived because the national and global economies have many problems. The debt bombs in Europe, Asia, and the Americas continue to tick away. Collectively, we are all over-leveraged. A painful adjustment can be delayed, but not avoided.  So...invest, but do so very cautiously. 
Dec 19, 2012 5:52PM
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Sorry...you investors go first...i'll say here on the sidelines....I know all too well of Jim Crappers predictions. Sorry to be such a downer...but just being a realist.
Dec 19, 2012 5:20PM
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You cannot be serious... so the market won't fall off a cliff after all??  I’ve been diligently prepping for three years now, what ever will I do with my sizable stockpile?

Dec 19, 2012 5:16PM
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Rocco, Rocco, Rocco,

This would have been a nice, meaningful post if (1) you hadn't totally missed cause versus effect, and (2) you hadn't referred to anything written by Jim Cramer as "excellent".

Do just a little bit of research and you'll see that 1992 marked the beginning of nearly a decade of consecutive REDUCTIONS in the Federal budget deficit:  starting with a $390 B deficit in 1992 and ending with a $236 B surplus in 2000, the largest Federal budget surplus ever!  Even though 2001 had a Federal budget surplus of about $130 B, it was the last such surplus and our annual deficit has been growing ever since.  Nothing like this deficit reduction run ever occurred previously in the history of the US, and I fear it will never happen again.

With citizens and corporations seeing that Government was serious about controlling reckless spending and consequently that FEDERAL TAX RATES WOULD NOT BE INCREASING (thus also giving great confidence that our fiat money would not be devalued over the long haul), is it any wonder that Wall Street went on a tear over this period, rising from 3,200 to 11,000 as noted?

Of course, Cramer states "... the greatest thing about the bull market of the 1990s was how little Washington mattered at all", showing once again how truly clueless the man really is. 

If you want to understand cause-and-effect, lean on the old adage "Follow the money."
Dec 19, 2012 4:55PM
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Lets put the blame where it belongs.  Boner and the rest of the Republican Congress are stonewalling and prolonging our chances of ever recovering from this fiscal nightmare.  Boner is a hardheaded Congressional Lifer who is NEVER going to pass a bill to make the rich pay their fair share!  He is an **** kisser of big business out to kill off the middle class. He keeps referring to it as, "Our small businesses can't afford a tax hike".  It's not a tax hike on business, its a tax hike on upper middle to upper class PEOPLE!  $250,000 a year is much more then MANY people make in this country! It's not about business!  No Republicans are our friends, so wake up and tell the rich to pay their share, the rest of us are broke!
Dec 19, 2012 4:34PM
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When are people going to realize that the market survives and prospers even

with wars, impeachment, terror attacks, etc,etc.The DOW was at 777 in 1982.

Look how much crap has been thrown at the market and it`s up like 1600%

since then.If you don`t like the market, stay out.The rest of us are making tons

of money.

Dec 19, 2012 4:20PM
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The government is borrowing money to pay the interest on the money they borrowed. All of our commerce depends on a stable dollar. Until the government retreats from deficit spending and reverses the trends of increasing national debt, the Dollar's future is ending. You may be further ahead holding Casino Tokens from Vegas than holding Dollars. 
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We need to have another President in this day and age to do the same thing, not burden people with more taxes and less spending.
Dec 19, 2012 3:47PM
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Did you hear we will let GM buy back some of their stock at half what we paid for it. Wow, and you ****s voted for this jac kass.
Dec 19, 2012 3:01PM
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the SEC is investigating the street.com for accounting fraud.....beware of this crook
Dec 19, 2012 2:48PM
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We are now a third world banana republic.  We have nearly half the population now illiterate and on the public dole.  We have representatives who have strayed from the public work and are off doing what most benefits them.  We have politicized our schools, our military, and our media.  We are lied to and confused and the most vulnerable are falling victim.  And MSN puts out this kind of garbage.  This hyped "HOPE" is exactly what most of us register as nonsense.  We need truth and responsibility.  This country is in trouble, big trouble and the Street Staff are pouring gasoline on the fire with flashy headlines like this.  PATHETIC!  These folks need a time out.  Where is the editor and  what is that person thinking?  
Dec 19, 2012 2:06PM
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Taxes are only for show and class warfare.  The government prints what ever money it want.

Who pays for  satellite radio??   Radio has been free for that past 100 years.   Dumb concept doomed to fail.

HP and Best Buy are dinosaurs  ready to die any day now.
Dec 19, 2012 1:57PM
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We need to cut spending.  We need to raise taxes on the 47% that pay ZERO.

Once the budget is balanced we can consider raising taxes on the rest...

Obama is a LAZY, arrogant, corrupt imbecile.  If we go over the cliff if will be because of his stubborn socialist views.  So be it.   It will be entirely his fault.

If he wants taxes to go up they MUST go up on all people EQUALLY.  The 47% must start to contribute and stop being such leeches.
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