Fret all you want over the Fed's next moves

Of course Bernanke has a QE3 exit plan. I just don't think it will matter that much to the economy.

By Jim Cramer May 13, 2013 8:49AM

thestreet logo

Federal Reserve Building © Hisham Ibrahim CorbisSo the Federal Reserve does have a plan to stop buying bonds. You mean it isn't just going to go cold-turkey? You mean it isn't just going to wreck everything without any thought?


That's what I thought when I read The Wall Street Journal piece about how Chairman Ben Bernanke is all set with a plan for ending the third round of quantitative easing. The premise of the piece, in itself, implies that he hadn't even considered it and would never do so.


The article, to me, was a "duh." Still, I am sure plenty of people will say "Look, he had a plan. When there's a plan he must be ready to use it."


Now, it is true that there could be some reason to believe that, say, 3%-yielding stocks won't be as competitive with bonds if Bernanke decides to stop buying and start selling like a madman. But it is entirely possible that there will be actual buyers of bonds, given the widespread interest in fixed income all over the globe.


If you ask me, I believe the whole bond-buying theme, initially so important, is no longer as dicey or as dangerous or as germane as it had once been. That's because I simply do not believe rates are going to go up so much, given that government bonds worldwide have declined so much in yield. If anything, I think the worrisome investing place -- besides bonds that are well above par and the funds that own them -- might very well be the corporate market, where the returns have truly been pathetic.


You see, if I am right about the receipts of the government, you may not have as much supply out there as you think you might. There's demand for bonds away from Bernanke, and it's possible there isn't as much supply as there had once been.


In fact, I would rather pay for a stock with a 3% yield with upside than a 2% corporate bond with no upside whatsoever. It's the competition in bonds that is in trouble -- but, from what I can tell, there's been a tremendous issuance already, so it might not be as big a deal anyway.

One thing is certain, though. The banks will be the biggest winners if this happens. They have been saddled with terrible and declining net interest margins. If Bernanke were to walk away, I am sure that would change immediately. They would become the go-to group, for certain, and that's huge for this market -- because the financials are, arguably, as much as 20% of the entire market.


So worry. Fret. Sell off the market. I just don't think it will matter that much to the economy. If prospective home buyers believe rates are about to go up, that will force them into making a decision to buy a house when there are still houses left -- one more spur to the U.S. economy.


I know this Wall Street Journal article is going to spur some selling. I just urge you to think about what you are going to sell. Is it really going to get hurt? Is Clorox (CLX) immediately going to 3.5% because of the bond change? Is General Mills (GIS) going to 4%?


Perhaps.


But I wouldn't bet a lot of money on it, because many already are.

 

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 Action Alerts PLUS, which Cramer co-manages as a charitable trust and has no positions in stocks mentioned.

 

 

More from TheStreet.com

76Comments
May 13, 2013 12:00PM
avatar
Printed money has inflated asset prices and reduced the purchasing power of the consumer. The consumer is 70% of our economy. Until there are good paying, 40 hour a week jobs and the consumers purchasing power is strong our economy is going nowhere. The fed needs to reduce real inflation and congress needs to not raise taxes on the consumer.
May 13, 2013 9:27AM
avatar
I believe Bernanke believes that when we hit 6.5% unemployment; as he has stated, that that is the exit plan.  He is thinking the pump will then be primed and he can slowly head off into another less costly stimulative direction.  Like we have heard here many times, America is the least worst choice among all choices.  There are many many difficulties around the world for labor markets.  China is experiencing unrest in their workers and just today we see workers choosing to Unionize in Bangladesh.  Bottom line is we need employed Americans paying taxes.  The Internationals are now headed to Mexico and Central America to escape the realization in many Asian countries that they were given raw deals by their Guberments.  American small business needs to escape the destructive wrath inflicted by the Politicos in DC by their support for these International Economic terrorists.  This will be the needed action before any true Economic growth will reappear here in the States.  I think Bernanke has given his best for a situation he can only stand by on the sidelines and attempt to influence.  In a way Bernanke is the White Knight in this dark period where corruption has taken us to the brink of a complete collapse.  The Fed in my opinion has attempted to make the best of an economic imperative that a corrupt political body has placed on its doorstep.  JMHO
May 13, 2013 9:41AM
avatar
The FED signals months ahead of time what it plans to do through the language in it's meeting minutes and statements.  There will be no surprise rate hike or sudden stop in buying, everyone who pays attention will have ample warning so no fear mongering is necessary.
avatar

WAKE UP CRAMER

Quote

If you ask me, I believe the whole bond-buying theme, initially so important, is no longer as dicey or as dangerous or as germane as it had once been.

End Quote

 

Pretty much Bernanke has to buy bonds as there is not enough disposable income in the world to buy US T-bills,state and local government bonds ,EU bonds,Japanese bonds and fill the void where 30,000,000 retired US workers and probably the same number in Japan and Europe giving a total of 100,000,000 retired people in these three counters taking $30,000 to $200,000 a year out of the stock and bond markets to pay for their retirement and the hit the market has with them not putting $5,000 a year into the stock and bond market.

 

Also those workers are being replaced by 1/2 of a new worker making only $14,000 a year ( correction $10,000 on a 29 hour work week so bosses can skip the Obama Care) who takes about $14,000 a year out of the economy in form of welfare ,paid health care and food stamps. So basically all the jobs we have created since 2009 have been costing the federal government at least $14,000 a person.

 

Pretty much the western economies have imploded and only insane amounts of monies being printed by the central banks are keeping things afloat.

 

Cramer if the Fed cut off the money tomorrow the US economy would collapse over night.

 

May 13, 2013 12:38PM
avatar

Barry, you come to Akron on the 22nd and I`ll show you my great portfolio that`s

up over 100% with Obama.I learned the market.What did you learn at all those

KKK meetings you went to?

May 13, 2013 12:19PM
avatar

I would think the Government/Congress will have to raise some taxation...?

 

But before that could/should happen there has to be severe spending cuts..

Downfunding Wars and Defense come to mind,along with bags of money for "so-called Foreign Aid."

And other "worthless pet projects."

 

To fund other "guaranteed job producers." then maybe we can crawl out of the crap.

May 13, 2013 10:28AM
avatar
"Of course Bernanke has a QE3 exit plan. I just don't think it will matter that much to the economy."


After a comment like this, we must ask ourselves, who's more naive, Cramer or Obama?

May 13, 2013 11:46AM
avatar

A lot of tips can be picked up in the "right bars."

They also have to listen to a lot of blabbering..too.

 

Cabbies are what they are....Always listening, "when pretending" not to...

And then many have trouble understanding English also, except when coming to the tip.

May 13, 2013 10:51AM
avatar
What's really amusing is that Ben Bernanke is not even going to be the Fed Chairmen by the time the QE and zero interest rate strategy needs to be unwound. He's going to be replaced in Jan, 2014.
May 13, 2013 12:15PM
avatar

IKE AND ME;I`m just stating facts when I say the market was down 37% with Bush.

Yes, I`ll blame Obama:the market is up over 85% with Obama and we`ve had 36 straight

months of job growth.Republicans hate facts.

May 13, 2013 12:50PM
avatar

Barry, you`re a regular Henry Wordsworth Longfellow as Archie Bunker would say.Did

you go to Harvard or Yale?

May 13, 2013 10:40AM
avatar

We have been waiting for this to happen, I'm sure or would have thought everyone else was on board too....Considering this "would NOT or couldn't " go on forever, why is anyone surprised..??

 

No doom & gloom here, like others might state; I'm just hoping to plan enough to keep our ship on an even keel...Or afloat.....These things happen..

Bernanke is not Greenspan....Greenjeans would have probably just pulled the rug or plug...And we would have turmoil for a few weeks or a Quarter so....??

Let's hope there has been a learning curve over the years, that has been put in place..?

And let's hope it is put to use wisely...

May 13, 2013 11:04AM
avatar

Lemme see, I know large Corps have been rat-holing and hoarding bucks...And a lot is being held in offshore or other type accounts....Waiting for "favorable" repatriating to change; At least that is my guess....I'm sure that's going to happen, just a matter of time with the mix we have on the Hill.

 

Kinda thought Banks were in that playing genre also...Waiting to pull some triggers on paybacks, along with some interest increases (end of Q3) and then releasing bits and pieces of "shadow inventory", so as not to spook the housing or other Markets...

 

Do we have a plan here or not, what am I missing...?? I know there is something ??

Jobs increasing is a "slow returning Given", so that's not it.

May 13, 2013 12:01PM
avatar

I would only hope that a 3% yield Company had more then a 2% growth upside....?

But I may have also mis-read his sentence..??

 

No doubt there are much better yields; But chasing rainbows, can sometimes get you wet.

But going across 10 Sectors trying to get a safe 5-7% is more relistic...

 

Such as what happened to REITS the past few days or week...Nice averages of over 10%+, but giving back 4-6% didn't make any sense...Being way past Ex-Div date...?

And I can't believe a little blabbering from the FED, could have this much effect this soon..?

Guess the numbers from 1 or 2, just shoots them all in the foot...Senseless bullshidt...?

But NOBODY, like Cramer is saying much, to peons like myself.??

May 13, 2013 10:47AM
avatar
They want us to forget how the elite so-called saving us, has affected us. The Great Recession and the Great Depression. Remember, Recessions and Depressions are Garage Sales for the elite, they get everything on Sale. They still have plenty of asset/cash, you just have the leftover bread crumbs. Keep that in mind when Jimmy talks about who should fret over what.
May 13, 2013 2:20PM
avatar
The Fed has distorted the whole economy with its QE. It only produces temporary results and has been kept for too long. Keeping interest rates at zero for savers is similar to revoking the gravity law, basic economics tell anyone it´s not reasonable to deny savers at least the cost of money in time and inflation compensation. All the trillions injected into the banks and large Treasury bond holders have generated huge asset bubbles and some tepid economic improvements that can not be sustained indefinitely.  
May 13, 2013 9:51AM
avatar
I think you should check out the rift between "reported" strong retail sales and "actual" retail sales. In motorized retail, the average F&I person is back packaging Subprime and worse financing. I'm seeing some pretty shaky deals in the Secondary. As for Box Retailers... what have they got? Levi's have replacement tags and stickers, store brand sells for a buck and the selection- isn't. Grocery stores are in trouble... more and more greens are coming in brown and the variety in labels is shrinking. It has EVERYTHING to do with the Fed now. What we have here is a failure to be sustainable. If they keep on printing, we will compromise by dilution. A non-viable currency neither buys or pays. If they stop printing, Wall Street goes to Hell immediately. No business platform can actually do what it's name or function says it should, it's just a financial and administrative shell. There aren't enough small and Main Street businesses left. This post isn't doom and gloom... it's an ALARM CLOCK. Wake the F up!!! If you are paid salary, what will you do when you are not? That's inevitable, not theoretical! With 95% of all stock market values stoked with fake money, what are the odds of successful liquidation at any point in time? ZERO. Adversely, liquidating now and buying in or starting an alternative enterprise is absolutely critical. It can't be artibrage and it can't be based in administrative or consulting. If you like eating, get working independent of the broken machine. Hey Super Nova Theory fans... who would have thought we'd actually be here!
May 13, 2013 10:15AM
avatar
Jimmy just proved he is a total idiot, again. Did Jimmy forget the record iBond deal. It' matters not if intial demand was 3 to 1, what matters is total supply once rates back up. The FED has no control of Euro-Zone, Japan, and China in what amounts to economic collapse. The Fed has no control over Record College Loan and Personal Debt. The Fed has no Control over the Fact that soon, the National Debt will soon be over 20 Trillion and that Japan's Debt issues are worse than ours. Note, Japan is the world's third largest Economy. The Fed has no Control over the 500 Trillion plus and growing, scam Derivative Markets.

There is a thin line between a Big Bank surviving or failing once the FEDS life support is withdrawn. Sooner or later, folks like Jimmy will realize that. Then they will say, oh but nobody knew. You knew, Jimmy, you just refuse to be anything other than a well paid puppet to Wall Street.

May 13, 2013 1:13PM
avatar

Barry, NY is heaven right?I know it`s a big state.Lots of cold weather and way too

many friendly people.You should go to Harlem and get jungle fever.Can you

do the Harlem Shake?I lived in a great area in Ohio.The weather was crap, unlike

you I was smart enough and rich enough to get away.

May 13, 2013 3:46PM
avatar

Barry, you`re killing me !Stop trying to be funny.Nobody is as stupid as you.

Even Fox fired Palin.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

124
124 rated 1
282
282 rated 2
455
455 rated 3
624
624 rated 4
642
642 rated 5
665
665 rated 6
610
610 rated 7
460
460 rated 8
287
287 rated 9
167
167 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
KOGKODIAK OIL & GAS Corp10
TWXTIME WARNER Inc10
BBBYBED BATH & BEYOND INC10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
COPCONOCOPHILLIPS9
More

VIDEO ON MSN MONEY

ABOUT

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.