Focus on earnings, not fiscal cliff

Ignore the risk-on, risk-off intellectual laziness, and don't let the obvious deter you from finding a haystack filled with needles.

By Jim Cramer Nov 7, 2012 10:23AM

thestreet LOGOKick Images, Photodisc, Getty ImagesDo we really have to start the fiscal cliff drumbeat immediately? Or can we just stipulate that at some point we will be down 1,000 Dow points, maybe more, before anyone acts to bridge it?

 

I want to approach the cliff discussion in three serial ways, the order that will define the stock market.

 

First, we had an election Tuesday night. It was definitive. There's no disputing Cleveland votes. There were no hanging chads in Florida. In fact, despite the big swath of red in your face, it wasn't even close. That's right, I repeat, it wasn't even close.


The way election coverage unfolds is per se close, but let's just imagine that Ohio, Pennsylvania and Virginia closed at 7 p.m. and could tally instantly. We would have been in bed at 10 p.m. It's the way news is filtered that it seems so close. I wrote the lead story in the Harvard Crimson about how Mississippi put Carter over the top in the 1976 election. It seems silly right now. I mean, did Colorado put Obama over the top? Who cares? He went over the top by a wide electoral margin, and you may hate that we use electorals. But, as they say in sports, that's all she wrote.

 

Given that we have a resolution, we can't sniff at having a resolution. We are therefore better off than we were Tuesday, when there was plenty of news about how we wouldn't have any resolution.

 

Second, given that we have seen this tableau before, like the past four years, we can't presume that we are going to see a wholesale repeal of prices. What's the point? The Romney boomlet -- and that's what it was -- affected coal. It didn't even affect oil. There weren't a heck of a lot of stocks that ran in anticipation of a Romney surprise, even as the Romney people at CNBC seemed mighty surprised. And like Josey Wales in "The Outlaw" of the same name, they didn't want to believe the war was over and were still declaring victory.

 

Maybe they will sell their coal stocks Wednesday.

 

Third, the focus has to be on earnings, not fiscal cliff, because the fiscal cliff is that kind of binary, risk-on, risk-off garbage that people who don't want to do the homework on individual stocks get to throw out. How I wish I had that luxury, but I co-manage a charitable trust, have a lightening round and have prided myself not on saying "the National League will win the series" but on picking the team that does, because, ultimately, no one wagers on the National verses the American league, except people who are too lazy to find out who is playing.

 

So no legal challenge, no different regime and no risk-on, risk-off approach to the fiscal cliff.

 

All that said, after Tuesday night's Democratic victory -- and let's call it that -- the fact is that there are people who won't call it that. Many of those people are cliff walkers. I want to send them to Newport, R.I., where they can cliffwalk among the mansions, because a byproduct of what these people believe in is lower stock prices, and I favor higher stock prices.


It is undeniable that if we go over the fiscal cliff it is simply better to be short than long. I can name many more shorts than longs when we take the plunge, so I say "thanks for nothing" if these ideologues get the edge on the compromisers. If we are in a permanent state of battle, then we are in a permanent state of the need to have one foot out the door.

 

But let me draw you into a radical thesis. First, not every stock will be sent down by the cliff or at least stay down by the cliff. You going to eat fewer Kellogg's Frosted Flakes? You going to drink less beer? Are foreigners, the swing voters for many companies' earnings as diverse as Coca-Cola (KO) and Anheuser Busch going to sip less Coke and swill less Bud? I don't think so.

We can pick plenty of stocks to go with the moment. Don't trust this methodology just outlined? Then go buy some Carlsberg. Now, I like a good Carlsberg if I can find one, but the CEO this morning, when asked on Bloomberg whether he's worried about the fiscal cliff after his company reported a mighty quarter that moved the stock almost 4%, looked incredulous and said he doesn't sell a lot of Carlsberg in the U.S., but he is making huge inroads in Russia.

 

Maybe we should worry about a Russia fiscal cliff.

 

Nyet.

 

Again retreating to the nonbinary notion of the true market as opposed to the risk-on, risk-off intellectual laziness, who says we have to buy Huntington Ingalls (HII), perhaps the company most affected by the Cliff because it makes naval ships and we know that Obama could lump them in with bayonets and horses if the Pentagon's not careful.

 

Maybe it's Newport News-on, On Nerwport News-off, to focus directly on ship building.

 

Ah hah, you say, but won't taxes have to go up and we need to sell dividend stocks so we have dividend-risk-on, dividend-risk-off? I think that one look at the makeup of Congress tells you that we aren't going to see a radical revision in taxes, even as that's a way off the cliff.

 

Sequestration, as loathsome as it is, will impact the tax rate for dividends, as the Office of Management and Budget would be directed to take up the tax to ordinary rates. But given the fractured nature of Congress, I doubt they will let that happen.

 

So, let's play it out. We focus on fiscal cliff, then we close our eyes to the next set of earnings that come out. Oops, it is still earnings season, including retailers. It is difficult enough to parse out Sandy, now I have to parse out Sandy and then throw away the whole group anyway because it is high-growth-retail-on, high-growth-retail-off? We focus on fiscal cliff and we fail to look at the companies that have done so much to cut their exposure to Europe or to develop a business that doesn't even go near the national park, let alone the cliff itself. We focus on the fiscal cliff and forget the flood of stimulus that is driving China's markets higher?

 

At this point, that's like Doestoevsky's gambler focusing on red except it is red or blue. You are simply betting that the two parties hate each other and this was a dig-your-heels-in event, not an event that says "wow, if we go off to the far right we win a lot of elections." I get that we might have that situation, but that's why I default to trying to make money in individual stocks rather than the roulette table. Who knows, we might get a couple of double-zero takeovers by companies that don't care about sequestration and there are plenty that don't.

 

I guess my bottom line is that I am not going to let the obvious deter me from finding what some view as needles in a haystack and I view as a haystack filled with needles.

 

Jim Cramer's face

 

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 KO.  

 

 

 

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58Comments
Nov 7, 2012 12:47PM
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And speaking of Sirius isn't iPad owners now the new mobility target in addition to cars. I see great growth potential if everyone decides to make radio mobile-- without having to carry a transistor radio around.  So archaic!
 The Jersey Shore Dudes probably still sing Freddy Cannon's "transistor sister". Hey he was one of them! Down at Palisades Park. Just for you Jimbo. You know what I'm talking about ya old Baby Boomer
Nov 7, 2012 12:35PM
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Question:  Since people bitch about the ads and privacy issues on FB, why doesn't someone offer the exact same social platform as Facebook does for a small monthly subscription with privacy and no ads guaranteed. That was the model Sirius used when starting out
Nov 7, 2012 12:28PM
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 Biggest mystery: DID Mitt slap Christie in the face on the VP position and was his bear hug of Obama payback?
Nov 7, 2012 12:26PM
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Chuck Todd took a shower , did some laundry and now it's on to 2014
Nov 7, 2012 12:24PM
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Jim, Good call on the election outcome.
Nov 7, 2012 12:22PM
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 The Upper Class got to where they are thanks to the work and consumer spending of the Middle Class. They are ENTITLED to a kickback.
Nov 7, 2012 12:16PM
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Todays drop has nothing to do with the election, Europe or Fiscal Cliff. Wall Street is in manipulation mode to take away this years gain and no good news or bad news is going to change it. Wall Street wont consider anything to move markets up. Plain and simple fact!!i
Nov 7, 2012 12:06PM
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Cramer more B.S from you!    Reality is Smart Money has left the House ! Take your Money and Run !
Nov 7, 2012 12:04PM
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 Facebook? The Chartist Day Traders must have made a mint off of it. At least 4  quick 10- 20%% rises  after big drops. Those buying early and holding long were idiots-- in the hole for years they are
Nov 7, 2012 11:58AM
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All things must pass and it will all come out in the wash is my economic philosophy Weather too! Nice today , snow tomorrow and then it melts
Nov 7, 2012 11:53AM
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 The GOP WANTED spending cuts and here they are! The Dems wanted more tax revenue and here it is. So what's the problem?? A compromise at work. Or maybe its called be careful what you wish for
Nov 7, 2012 11:43AM
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 Are small potato defense contractors already laying people off because there is no firm commitment for contracts after Jan 1? My neighbor is a machinist who works for a small defense contractor at a Naval Shipyard and this is his 3rd week straight without going to work
Nov 7, 2012 11:32AM
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Hmm cramer ...how come you are not mentioning that FB option holders will likely sell off their stocks this year as they will not be getting romneys 0% capital gains tax next year? I know you and your street employees have been pumping FB for a while ...you were crowing about it last week when it was at $24 but now you are quiet ?

This scenario is also probably true for others who have big gains and will choose to cash out at 15% CGT rather than risk a post cliff increase for next year .....

After that when big business is forced to spend its 3- 5 trillion cash hoard things will be rosy again.
Nov 7, 2012 10:39AM
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Whoo! looks like Amrika no like results of election!
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