Beware the market's one-two punch
Some big stocks are susceptible to no real translation from the macro to the micro.
When will the macro give the micro a break? When will the stronger news we see, the sweeping data like the 14% increase in Chinese exports we got last night, translate into higher earnings for the companies doing business there?
When will the more stable interest rates and slowing of the rate of decline in business in Europe impact our companies' bottom lines in a positive way?
Or does the prospect of chaos in Washington offset whatever good there might be to come when we eventually get it?
Or, worse, do the stocks already reflect that turn and then some and can only go down when we see the actual numbers across the tape?
That's what I've been pondering when I see, for example, the interplay between the commodities that are rallying off the broader Chinese news and the stocks behind them.
Let's take the reaction to Alcoa (AA). You had revisions upward in every product line, mostly because of an increase in the rate of growth in China coupled with a more gentle decline in Europe. These results produced some pretty good numbers relative to expectations.
Nevertheless, the stock had gone to $9 from $8 in part because people expected that the turn in China would help them and that they wouldn't be as hurt by Europe as they had been.
We got exactly that and nothing more. It wasn't enough.
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I am looking at oil going higher and I am thinking we could get the same thing when the oil companies report. A better commodity price because of a better global environment, led by China, produces slightly better earnings, no more than that.
So, again, maybe the stocks just don't have room to run.
In the meantime, making things more treacherous are the downgrades by analysts who seem, daily, to pronounce as over the moves we see. Case in point: Vale (VALE). We are getting some pretty positive import data out of China about iron ore demand. That directly impacts Vale. In the meantime, HSBC two days ago downgrades Vale, noting the same trends but saying that's why the stock's gone to $20 from $17.
Is there any thought, perhaps, that if China goes from 8% growth back to 11% growth that Vale might not yet be anywhere near where it could go and that it did, indeed, trade at $35 two-and-a-half years ago? Does that range matter?
Apparently not.
Isn't that your concern, say, with Cummins (CMI), with Caterpillar (CAT) or with Joy (JOY) or even Coach (COH)? All have been rallying on the big macro Chinese data.
But could they be Alcoas, too, or more dangerous than Alcoa given that AA didn't hurt you on the better-than-expected news? Do you think that China's improvement this quarter hits Joy Global's news or did the ten-point run it just had include that better macro environment and if it hasn't translated into orders the stock gets whacked?
Wasn't there a big inventory of Caterpillar earthmovers building in China? Did that suddenly get worked off? When Alcoa says truck sales are picking up steam in China isn't that why Cummins just moved to $113 from $97?
Can they even take away Coach's three-point gain that can only be attributed to a more sanguine Chinese outlook, as nothing good is happening in the U.S.
Are all of these Vale or Alcoa?
That's what you have to worry about if you come in here and start buying. Worry that these stocks are susceptible to a one-two punch of no real translation from the macro to the micro and then the concomitant downgrades from a fearful analyst community, with one eye on Washington that always gives them pause.
Yep, it's hard to resist this rally. But remember the analysts aren't your friends and the rallies that we have had already aren't your allies either.
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 VALE.
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Well said, don't trust anything that's said in any article written by any analyst. Or wait a second, can this mean what I think it means. I don't know.
"When will the macro give the micro a break? When will the stronger news we see, the sweeping data like the 14% increase in Chinese exports we got last night, translate into higher earnings for the companies doing business there?"
I actually thought this was pretty ironic. China (strapped with too much coal, low factory activity and no indigenous pulse to offset the cost to export) suddenly announces increases in exports. THINK about where that stuff goes. Europe and America are both dead economically, so bringing in more surplus is a doofus move... it strangles any possible sustainability in big boxes here. It goes from shipped crate to warehouse to stockroom to clearance rack and remains there until the sub-economy buys it for less than it cost to make, much less export and import. So... we have a Bull Shipt funded week to restore the markets (because a 13,500 Dow appears to be more important than everything else in the world), but in a few months from now, retailers will be nearly dead or in court begging for renegotiation of the debt created by these most recent Chinese imports. If we just incarcerated the morons running the big companies and the banks that fund them, we MIGHT be able to majorly recover. I'm not sure what YOUR definitions of Gross Negligence, Willful Misconduct, Deadbeat and Terrorist are... but I'm pretty confident that aiders and abettors in what I describe above-- define them perfectly. How pathetic will it get?
Re Tog: Serendipity. This might be the first time I have 1) read other poster's comments; 2) I cycled back to any article I have commented on. I did today. Your use of my post name caught my attention. Inflation measurement - Answer: there are a myriad of ways - from researching the increase in price/size of individual products to the easiest way = comparing a "market basket" (a large group of frequently used/necessary products) used by the federal government to measure inflation from year to year. It's tricky because this admin has removed the most highly inflated items (food and fuel) from the equation to present a false picture of inflation, IF you add those back in you come up with 28% from 2007 to 2012. And, you are perceptive. That is precisely why I have not been in the market since 2007. BHO's 13,000 stock market is equivalent to 9,360 in 2007 dollars.
This administration can fool the uninformed and emotional voter. They can stir people up with class warfare and "yes we can" chants . Obama and the socalist party can talk "transformation" and make the uneducated and unexperienced believe it is for the best. Obama can falsify monthy employment data and put it on the front page and a month later retract it and it gets put on the botton of page 40.
The investors, business owners and bankers understand the truth!! The truth does not change just because it is Obama promissing "hope and change" ! It means nothing when he is telling us that unemployment is at 7.8% when the truth is 17%. What number do you think investors and business people use? The new media has lied and coverd up the massive failings of this president and his administration and are continuing to do so.
What do you think is going to happen to the banks when they can no longer borrow .05% money and lend it out at 4% ? thats right interest rates go up and people wait (unemployment also goes up) What happens when taxes on business an individuals go up? right again people stop spending and unemployment goes up.
If you were a new company would you set up in the US with its high office cost, the highest business taxes in the world and the constant threat on force unionization? Or would you go somewhere with a friendly business atmosphere?
I am reading post where fools are talking about greedy business and higher wages for workers with no advanded degrees, no special skills but they all want to make doctor wages for putting a bolt in a car hood on a assembly line.
Obama is about to cause more pain and suffering on the Old, retired, poor and middle class that anybody before. This march to socalism will hurt everybody! Socalism does bring anybody but the poorest of the poor UP in society but brings everbody else down the the lowest level. Just check out Greese if you think Obama and the socalist union supporters are so great!!
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