In 31 years, I've never seen markets this crazy

Amid the massive bets distorting the market, stocks are tossed around like rubber ducks in the South Pacific. Dividend stocks may be the only way to make money in this madness.

By Jim Cramer Nov 9, 2011 10:57AM

the streetWhen we speak of the confusion out there, when we speak of hedge funds being stymied and mutual funds unsure of themselves, when we try to rationalize what the heck is going on by looking at all of the various bets out there, we have to conclude one thing: No one knows what the heck he or she is doing!


Consider, just this week, how rampant the seeming irrationality is and try to address these six glaring inconsistencies.


1. If Europe is so weak, then why does oil continue to climb? Sure, it is possible that China is grabbing all of the oil it can. At the same time, the world is awash with oil even without Libya. Iraq is pumping much more than a year ago and is taking up the slack for Libya. The United States is pumping a phenomenal amount of oil vs. a year ago. So is Brazil.

I know that there is some manipulation going on, as there always seems to be, but you can't get this kind of performance unless the world (particularly Europe, where Brent trades) isn't just stabilizing, but actually accelerating (as nutty as that is).


What might be happening, and the more likely case, is that financial firms are betting that China is going to stop tightening and that Europe isn't going into recession so they are buying up ships of oil -- because the day rates are so, so low -- and storing them. 

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It is possible, we know from Herbjorn Hansson, the CEO of the largest oil shipper at Nordic American Tanker, that oil is being stored worldwide in his giant fleet for later delivery. In other words, it's for speculation. Either way, there is a tremendous opportunity in all of the oil service stocks as they were priced for a breakdown of oil and we have been getting the opposite.


2. The euro seems to have stabilized here and is acting better. How can that be if Greece is failing and Italy is next? You should be selling this thing faster than a fistful of spent radioactive uranium. But it holds in at $1.37. Kind of Stonewall-like. Preposterous, unless you figure that people feel the worst is over for Europe -- and I don't know a soul who feels that way. We have seen the euro plummet before. It isn't plummeting now. Another hedge fund bet gone wrong? Certainly a possibility. Two weeks ago we wanted stable governments in Europe. Now we want a change in governments? Can we be that fickle? How can that be justified?


3. The European banks are selling sovereign bonds like mad, and their stocks are staying higher even as (in the case of SocGen, which told us things were going great not that long ago) the dividend gets canceled. Shouldn't these banks be swooning as our American banks did in 2008, since this is surely their 2008 moment? Not happening, perhaps because they are taking action. Perhaps because you can't short them because of rules that were put in place to avoid the rampant shorting that we saw in our country that contributed to the speed of the collapse of so many institutions?


4. Gold is going higher. Isn't that supposed to signal pure chaos? Isn't that the ticket? Isn't that supposed to signal that Italy is going to fail and that the euro will split apart, making gold a substitute currency? But the euro is strong. Could it mean that gold's going up because the Europeans are going to have to inflate? Maybe, but again, the euro isn't going down, which is what would be happening if that were the case. Perhaps this is a signal that the Chinese are buying, which is something that the Hong Kong data showed Monday?


5. Copper seems to have stabilized, but China is weaker. How can that be? Monday night we got Chinese one-year bill yields lowered ever so slightly. Could that mean the Chinese are starting their easing because property rates are falling so fast? Could this be the signal of the soft landing, which is making so many industrial stocks act better? How can that counteract a European recession?


6. American companies doing business in Europe, like Rockwell Automation (ROK), simply haven't seen much weakness in Europe at all. I would lump in Eaton (EV) and Parker-Hannifin (PH) and Caterpillar (CAT) as not seeing much weakness. Same with Honeywell (HON) and Oracle (ORCL). How in heck is that possible if Europe is already in or going into a recession? How can only a few -- like IBM (IBM), which saw a slight decline, and PPG Industries (PPG), which saw a slowdown in its optical business courtesy an aggressive German competitor -- be among those to see some softening in Europe?


Oh, and let's throw into the mix Vodaphone (VOD), the giant European phone company that's doing quite well as we learned Tuesday morning. How bizarre can you get?


How to explain these inconsistencies? I think that hedge funds are making huge bets that move the market contrarily. These bets distort the actual markets they play in. They affect the line, so to speak, and these different instruments, from stocks to oil to gold to bonds, can't correlate. The idea is that, ultimately, someone is wrong. But right now you have no patterns that make sense, hence the confusion.


So what happens when nothing makes sense? Hedge funds rarely like to admit it, but they tend to default to the charts, which creates even more confusion, but can also explain even more chaos.


Just Tuesday, for example, I was presented with two charts, one showing the S&P about to rally in a way that would make it so we have an amazing end of the year rally. Another chart shows catastrophe about to occur. This dichotomy is nothing new because, with all the volatility we have had, we have seen intraday charts show in the morning that we could lose 5-8% and the evening gain 5%-8%.


It is not just the S&P. Last week, we had downgrade after downgrade and short bet after short bet made against oil. We had companies be downgraded because if oil keeps going down they will have immense funding gaps. Now, a week later, oil just crossed its 200-day moving average, causing those short bets to be unwound and oil to burst higher. Now, the funding gaps turn into surpluses and the stocks we were concerned about, particularly the drillers, are all set to buy.


To sum it all up, what we are seeing is gigantic bets being made irrespective of other bets, something I have never seen in 31 years and would have told you can't happen. But they are clearly happening, simply because the pools of money are so great in size they can take the instruments where they want. It is like there is a series upsets that aren't supposed to happen all over the place, and the underdogs keep winning because the line is being set wrongly each day.


With all of these cross currents, stocks are like that big island of rubber ducks congregated in the South Seas somewhere, just flotsam and jetsam to be blown about and with the whims of charts and errant bets and ETFs that accentuate and distort those bets.


In short, the bets themselves are too big, the instruments too small, and the directions add up to being nonsensical, the only constant being the misery of being wrong on an hourly basis unless you rely on stock yield, which, in this world of low interest rates, may be the one method that can still make money in all of this madness.


Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long IBM and ORCL.


jim cramer

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for his charitable trust.

Nov 9, 2011 2:43PM

What ever happend to just betting (investing) on the stock market by just BUYING A STOCK? Where did all of this rip-off "Shorting" and "Putting" crap come from anyway? I tell you it was all invented by the likes of Berny Madoff and his ilk to steal from normal lay investors trying to retire on their 401K accounts. Betting on a stock's decline should not be possible other than by selling the damn thing that day for whatever it will bring. Hedge funds and derivatives should be outlawed, and credit default swaps too. Take down the computerized traders that are really insider traders given access to datastreams that we do not have the milloins of dollars of strategically placed computers for, to cheat regular investors by manipulating stocks on a second by second basis. Make those theives on Wall Street play by the same rules that we do.


I just wish, that I could take all of my money, plus the thousands and thousands I have lost there over the last ten years, and used it tax free to by land and invest in local companies and start ups. I would be rich now, instead of wondering if I will be able to afford soup and crackers if I ever get to retire.


GO OCCUPY WALL STREET! They have it right.

The reason that the markets are so "crazy" now is that the curtain is gone and  the wizard of OZ is now in plain view...............................meani​ng, the system is corrupt and thourghly so, to the point where those crooks that control this latest of rip-off systems are going for the gold before true control is forced upon them.
Nov 9, 2011 4:50PM

These frequent wild swings have taken place since July.  The problem is that once the big traders figure out how to make money on this type of crazy movement, (and I'm guessing some already have) there will no incentive for steady, stable growth. 


A few culprits could be the massive synchronized movements where marginal news moves the whole market up/down even it is is unrelated to a particular stock.  High Frequency trading also creates a massive surges which affect stability.  Common sense has gone out the window.  Charts, math, and even news can no longer predict where a stock will go.  The market is no longer an investment vehicle, but rather a speculative amusement ride making us all sick.  So we have the problem, now what does the average investor do about it?     

Nov 9, 2011 11:54AM
The stock market is the new Las Vegas.  In the end, the house always wins.  Why would anyone be playing around with the stock market?  The market's movements have been volatile and illogical for years now. 

If you are looking to INVEST money, look at opportunities to invest in local small businesses.  There are all kinds of solid, local, small businesses (including franchises) that do very well in your local communities.  I've been putting my money in these businesses for the last 8 years and have been enjoying satisfying returns while remaining relatively immune to the stock market's tantrums.

Nov 9, 2011 11:32AM
Last July I gave up and sold everything. I'm waiting it out and thought (mistakenly) that after the US and Europe straightened things out the market would get back on even keel. Good luck with that; it got worse. I gave my son $25k to see if he could do something with it. Although he does this for a living he couldn't understand it either and he and other brokers said they feel like they've become mentally unbalanced. If anyone feels they have lost the "touch", don't worry, you're not alone.
Nov 9, 2011 1:33PM
If the big boys would let the little people live and not manipulate the markets and speculate then it would be a better world but instead it is full of rich getting richer and so much greed and that will be the ruin of mankind.
Nov 9, 2011 1:16PM
Last week it was Greece. This weak it's Italy. Whose next? I say we take a lesson from Charles Darwin. Natural selection. Let these weaklings fail. Annex the territory by the stronger neighbors and move the hell on. I an getting pretty sick and tired of this nonsense. The sad part is that this country isn't all tht stable either and with the lack of leadership we suffer from now (either incumbent or pending), we should be concerned, very, very concerned.
Nov 9, 2011 3:00PM
Cramer is just trying to use logic to make sense of the markets, which has been missing from the markets for a long time now. The stock market is nothing like it was 30 years ago. I'm surprised he hasn't figured that out.
Nov 9, 2011 4:27PM
the traders on wall street have figured out how to game the system, if there is not boat loads of trading going on, they dont make boat loads of money, doesnt matter if they are selling or buying..just need lots of trades to generate commish and fees. It like almost everyone on wall street has become a day trader, managing money was the old way of making money for these guys, now its not managing money, its generating trades in the billions!
Nov 9, 2011 1:19PM
You have to look at what the global markets are in reality, SUPER GIANT CASINOS!.  Every investor is a GAMBLER.  One cannot deny this analogy, when people buy stocks, they are literally placing a bet that those stocks will gain in value. The problem is, you can't win if the game is rigged.  The stock market games are high stakes and not for the casual player.  I believe that global markets are rigged, at least in some part, but enough to cause wild swings. The casual player has no chance and usually takes a beating, while the big boys, the savvy boys capitalize even when the markets plunge.  Might be time to think about stuffing a mattress!.
Nov 9, 2011 12:57PM
Well what would you expect when its manipulated daily by those tossing "billions" around in it. If you dropped  billions  in the market you could make stocks do whatever you like whenever you like. Its a rigged game of the wealthy. Plain and simple.
Nov 9, 2011 3:58PM
Mark this day in history folks! Cramer finally admitting he doesn't understand **** about the markets. Kind of ironic though it almost seems like it has finally dawned on him and this is like the first spot on article I think he has written. He admits he doesn't understand what the markets are doing and writes his best article in his career (not too tough a standard to beat)... too funny. Just my two cents worth.
Nov 9, 2011 1:20PM

The only time to believe Cramer is in times like this... when he admits he doesn't know what the hell is going on.


These are times when even the frontrunners can get hammered, eh Jim?

Nov 9, 2011 3:43PM
When I first started investing 25+ years ago I remember reading books on the subject that said the average stock prices were around 10-12x earnings. Somehow along the way we have accepted paying far more for stocks than probably makes good business sense. Would any of us ever buy a small company which would take us 20-30yrs to re-coup our investment? I guess we are all speculating that profits will continue to accelerate every year to justify the prices we pay for the stock.
Nov 9, 2011 11:32AM

Well Mr. C has done it again, I don't know why everyone believes him, He is in it for the money just like them and if he can speculate and make them buy then he can make a mint and do nothing.

The market is going to flucuate because of the speculators doing the same thing making people buy gold and oil and stocks that will go up til the big buyers sell and make the money and leave the little man or woman out of their money.!!!

Nov 9, 2011 4:06PM

With what is happening in the markets hedge funds are going to go down like bowling pins with the high volatility that once favored them.  The program trading have not been written to reflect World conditions and it will be refreshing to see them hammered or bankrupt.  Capitalism will right the wrongs when it overcomes manipulation power of these institutions who are not ready for a new Wild West with the robber barons losing their shirt.  Buy some farmland at least you will have something to eat. until it settles out.

Nov 9, 2011 12:27PM
The only problem in the world markets is the trillions and trillions of dollars of fiat money that the central bankers keep creating ....and the the trillions and trillions of dollars of debt the politicians of the world continue to create. Get ready for the greater depression. Buy gold.
Nov 9, 2011 11:41AM
Italy's Lover hasn't left yet , and the market doesn't know what to do and it will go up and down so that the big investors can make more money by talking folks into buying and then they will sell!
Nov 9, 2011 5:17PM
This is the wild west, thieves and crooks are inside Wall Street.
Nov 9, 2011 11:18AM

hey smart guy,you say gold SHOULD be going up

you still don't understand that gold is not a stock hedge

it is an INFLATION hedge

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