Remember, everything gets exaggerated at first
Keep that in mind as the market reacts to China.
It's what happens after they hammer the S&P 500 ($INX) futures that matters. Of course they all have to come down as we decide that China's slowdown is "destroying" everything and everyone in its path. We then get to listen to and read a plethora of bears saying, "I told you so" -- bears who will hate it as much at the end of the day as they did at the beginning of the day. That's because anyone who is bearish thinks the S&P should be back to where it had been before this gigantic advance, and they've been looking for a reason to make that happen.
Might as well be the Chinese.
But then the smoke clears and what do we see?
We see a windfall for the U.S. consumer. We see a windfall for the U.S. manufacturer. We see pressure on those companies that actually ship to China or depend on mining to advance themselves.
You see, this is not 2008. It is the opposite of 2008. We had terrible commodity inflation back then, and it collapsed, but it was almost immediately buttressed by a Chinese acceleration. Now it has already collapsed -- and, unless Europe gets some growth, prices will stay down. Europe is China's biggest trading partner, and I think it has more to do with this decline in China gross domestic product than anything else. China is still an export-driven country, and the goods seem to have nowhere to go.
But let's speak of America -- not that it will matter at 9:30 a.m. EDT, but it will matter for the numbers. For months now, we've seen magnificent performance in U.S. stocks involved in creating consumer products. We had presumed that a lot of that had been because they tend to offer safe, above-average dividends in a declining-yield world. Plus, they have favorable tax treatment over bonds, something that we thought would be taken away.
Now the move has been so nosebleed that a lot of people, including yours truly, had to say to be careful of the very stuff you don't need to be careful about -- bleach, detergent, candy, soft drinks. The stocks began to sell at super high multiples to earnings, and those earnings weren't growing very fast.
But let's see. If you keep your long-fought-for price point in the supermarket or drug store, and your principal raw ingredient -- petrol -- is going down, the margin expansion could be breathtaking. That's what General Mills (GIS) CEO Ken Powell meant when he came on Mad Money and said that he saw the end of runaway commodity inflation.
These companies are huge winners, and after the S&P futures destroy everything in their path, remember that. Their rally makes sense. Can it continue to make sense? Yes, if the numbers are too low, and if gasoline comes down a lot, then they are too low.
How about the U.S consumer? The government has been taking away purchase power at the same time that gasoline has been going higher. But gasoline is priced off of Brent crude, and that is getting hammered. For certain, we have seen peak prices at the pump. While most of the people who opine on these issues can only talk about things like the payroll tax holiday ending, a big decline in gas prices could explain why we are seeing such robust action in both retail, and, more important, restaurants. The latter is also going to profit from what will surely be a collapse in grain prices, because they have been trading as part of what had been a terrific bet on the whole commodity complex that has now turned into a disaster.
Yet you thought McDonald's (MCD), Darden (DRI), Chipotle (CMG) and Panera (PNRA) were done? All they are is a collection of raw foodstuffs whipped into concoctions that people in cars fueled by gasoline eat. The consumer spends more, and the restaurant spends less, and the gross margins go higher, and now we know why Panera hit a 52-week high and Chipotle and Darden keep going higher even as we didn't think they could do so without reporting better numbers.
While the drug companies shouldn't, per se, be winners, they will be. That includes the higher-growth names like Celgene (CELG) and Biogen (BIIB), simply because the threat of inflation to the outyears earnings is dramatically lessened. Of course, that's what the stocks have been saying already -- but I presume that, after a nasty opening hit, the buyers will come in to accumulate them again.
- Also see: Are you a tax procrastinator?
I know all of this seems obvious but, by nature, the S&P 500 futures crush everything even as most of the companies in the index are net beneficiaries of a commodity collapse.
OK, who will get hurt? Because that is all anyone's going to focus on anyway. The producers of energy will get walloped. Even though they still make a ton of money getting mostly Brent pricing, the oil companies will see margins squeezed. Some drilling should drop off because of worries that oil here won't be economic to find here; and you thought that only the Canadian tar sands companies would get hit. We don't know about natural gas -- the Street is wildly long the commodity, but nat gas surely doesn't trade like other commodities, or it wouldn't have advanced when they had all been contracting.
Coal? The stocks will trade as if they'll go bust.
The steels and coppers and miners, as horrendous as they have been, will keep going down. I am sure people will presume that gold will retrace its entire move for the last few years. It's been up for 12 years straight, so it is reasonable to presume that the 20% decline isn't finished. Silver actually has industrial uses, so it gets hammered more.
Can you buy it?
I think that, if you own no gold, you have to pick up some silver into the weakness. Otherwise, no.
Obviously all machinery stocks get hit, and it won't matter how they are doing. They are considered China plays, and something major will need to happen in China before they get moving. I am sure people will say that will China hurts the tech space, too, so they'll hammer the personal-computer makers. But does Google (GOOG) deserve to sell down on this, given the fact that it doesn't even sell into China? Or does Apple (AAPL), given that it can't sell as well as it would like into China. Take your pick, but tech isn't as dangerous as it would seem because of China, it's just dangerous because we are about to get earnings.
Finally we get to the winners -- and I am sorry to point out winners on a loser day but, in the end, the world is controlled by profits, not S&P futures. First are homebuilders, as their raw costs have been rising and it is hard to see that continuing. The banks should perform well, simply because they do well in a lower-inflation environment. Then, of course, there's the Federal Reserve, which now looks pretty darned smart with its bond buys, not that anyone would ever say that.
Finally, perhaps the biggest winners of all: the airlines. If they can control their pricing -- and it looks like they can, given that there is now a slap-happy oligopoly in the airlines -- then the lower fuel costs will flow right to the bottom line.
Remember, everything gets exaggerated at first and the recessionistas get conflated with the earnings fear mongers while the commodity-based hedge funds liquidate.
Then the bottoming process begins. I wish I could tell you give it berth, but this is a problem largely among China and Europe and much less us, even as we know that there are plenty of company stocks that trade as if all that matters is China.
It matters, but it matters in both a positive way -- as a huge marginal buyer of commodities that we consume and don't produce enough of -- as well as in a negative way. People only think of the latter in the morning. But, in the end, there are a lot more companies like General Mills than there are names like Joy Global (JOY) -- and a lot more service and financial companies than there are oil and coal miners.
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 AAPL.
More from TheStreet.com
For once you hit upon the truth -- this is not 2008 -- ITS MUCH MUCH WORSE
Gee people wake up and smell the decay and rot going on in our economic system.
Japan is bankrupt they are printing yen to cover their bad debts by the trillions of dollars each year.
The USA is even more broker the Federal Reserve is pumping $85 billion a month into a totally dead economy each month. Over 100,000,000 Americans make less than $30,000 a year and the prices of goods and services are priced as if they made $120,000 four times what they really earn. Over 50,000,000 Americans are on food stamps or they would be starving to death.
Gee Cramer how much worse will the economy have to get 10,000,000 Americans dying of starvation each year before you realize that the economy is much much much worse now than in 2008.
The banks are still leveraged 50 to 1 THAT MEANS THEY LOANED OUT 50 bucks for each buck they had on deposit something that is suppose to be illegal. THEY HAVE ABOUT 20 percent of their loans go south on them which means the LOSSES are 10 TIMES THE AMOUNT OF MONEY ON DEPOSIT.
WHY DO YOU THINK THE FEDERAL RESERVE IS STILL loaning the banks money at zero percent interest???
IF THE FEDERAL RESERVE WAS NOT BUYING US T_BILLS nobody would be buying them.
OUR DEBT LOAD HAS INCREASED BY $6 trillion dollars in the past 4 years.
OUR REAL GDP is about $5 trillion a year. They include for instance $5 trillion in the GDP for the income you make renting out your house and living somewhere else for free. What crazies thought of that add to the GDP -- probably Nixon.
WE ARE FAST going to hit hyperinflation as people move away from the dollar as a trading currency and move to the yuan or RMB.
Europe is about ready to implode at any moment with massive bank runs the likes of which we have not seen since the Great Depression.
NTU... I'm just going to toss this out as validation for you. It's a work-in-progress. Chicago-land. You can't cover overhead on $28/hour. That is- food, housing, transportation and work-related costs. It seems outrageous, but the ancillary costs are what eats-up that pay yield. I have been studying it for sme time now. From 2000 to 2008, Chicago-land paychecks shrank 9% while costs rose more than 25% (ancillary included). From 2008 to-date, sub-wealth (that's everybody except the elitists on top) excluded, pay yield has dropped, wages are closer to $10/hour and full time employment is rarer. In short... nobody is actually making it. Uniquely, the basis for the research is 1905. Chicago proper- had 4 out of every 5 families indebted 125% or more (pay yield) to Loan Sharks. The City actually came to a stand-still economically,compromising both people and businesses together. The Loan Sharks caused the failure through irresponsible and corrupt lending (sharking) but THEY were funded by some of the same BANKS Ben is funding now. Wasn't BEN BERNANKE touted as an expert in the Great Depression Era? Isn't he PRECIDELY following what destroyed France in the 18th Century and America in the first decade of the 20th?
WHEN DO WE PULL THIS GUY OUT AND THROW HIM IN GITMO?
WHAT???? This 'isn't 2008'??? Well...you are right there Kramer; it isn't 2008. It's worse......way way worse than 2008. 2008 was only a precursor..only a tiny vision of the collapse that was to come and soon. What we are seeing now, and trying to avoid by all the 'can kicking' money printing old Benny Bucks Bernanks is doing, is pervasive and permanent compressive contraction.
your are totally outside reality Cramer
While most of the people who opine on these issues can only talk about things like the payroll tax holiday ending, a big decline in gas prices could explain why we are seeing such robust action in both retail, and, more important, restaurants.
You do not run the world's largest economy on what restaurants are doing or retail sales from Wal-mart.
A WORKING ECONOMY NEEDS TO BUILD THINGS TO WORK.
GOLD is just gold in the ground until someone mines it and someone else melts it down and someone else processes it into I-phones or I-pads or jewelery or idols.
IT'S THE ACT OF SOMEONE TAKING A RAW MATERIAL AND forming a new useful item from it that produces wealth.
RIGHT NOW most Americans work at jobs that are less useful than cave-men chewing cocaine leaves on the hill sides of what is called Columbia today.
Nobody down here is shocked at all about what we are seeing; markets have been doing very well lately and manipulators are having coronaries; we knew they would come out swinging this morning and they are selling anything and everything...Blame it on China; oil; a lousy weekend, irrelevant...They will do their thing as long as they can get away with it...Oh well, still very early, we will see what happens...More later.
We have had a bad economy since 2008.....we voted for Obama In 2008. The economy has been bad since he became president. WHAT RECOVERY? We then reward him AGAIN with FOUR MORE years! What? Our President, and his administration, has done NOTHING to turn this around. His policies and OBAMA CARE.....have and will make it much worse than today. When Obama Care fully kicks in....businesses will go down, down, down......This is OBAMA'S NEW NORM!
See everyone- Fat Cat does invest in companies- like mattel - complete with collectable barbie(Ms. Bambi) & Ken (Mr. Brucey) dolls. And don't forget the Hot Wheel collectables.
But you need to resist not play with them everyday- lowers the value of them.
Now put them back in their case and go get a chulupa lunch from across the street.
"VL:Too bad you missed the bull market.It`s been great.I`ve bought 2 nice cars, dined at nice restaurants and have been on great vacations.Is it fun being bitter?"
Here is your post from 4 days ago PUKE....... Just a caddy now not 2 cars. Liars always get found out because they can't keep their stories straight.
LOSER --- I bet you have a capital "L" tattooed to your forehead.
this hack got you in aapl at 700 and gold at 1900 etc etc etc
and now he has his fool partner link on CNBC ......she is absolutely a moron watch her blather and see she knows less than cramer
END THE FED.
END THE FED.
END THE FED.
END THE FED.
END THE FED.
END THE FED.
Said 6 times... it takes three to sink into the minds of normal people. Three more for psychopaths. End the Federal Reserve TODAY and begin the reconciliation of our national financial circumstance. Get GITMO ready... here come the nutcases who thought themselves above the rest of us.
Copyright © 2014 Microsoft. All rights reserved.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.