Washington pulls the rug out from under us
With the recovery possibly stalled, here are 3 indicators that would signal the selling is over.
It's indisputable that we were about to take off in this domestic economy after a slow recovery from the recession.
The twin trends of a return to a slow climb in the value of housing as well as the renaissance of industry courtesy of cheap natural gas were enough to get things rolling. The lack of new construction, the age of the average car -- 11 years -- the need to be able to get out of your in-laws' house and buy housing of your own, something that had actually been put on hold, all of these had created what looked to be a sustainable recovery, despite the problems in Europe that were clearly worsening.
You don't get fantastic numbers for companies as varied as PetSmart (PETM), Cisco (CISCO), Home Depot (HD), Kors (KORS), TJX (TJX), as well as Boeing (BA), Ford (F) (domestic), Dow Chemical (DOW) (domestic) and pretty much every consumer packaged goods, aerospace, telecom and health play if things aren't improving. Yes, we can complain about the earnings, but the retail, restaurant, housing and auto industries were all doing incredibly well as recently as October and the question was going to be, I believe, how much longer can the Federal Reserve stay accommodative in 2013 if these trends pick up. It's really only the companies that have moved aggressively into Europe and those that depend on Asia for marginal growth that have been really hurting. And we have had enough hopeful signs in China for me to believe that 2013 could be a good year for the companies depending on the Peoples Republic of China for its recovery.
All of these trends meant that the most important statistic, the one that is most correlative to the stock market -- employment -- was going to turn up in 2013. That was going to be the elixir that made it worthwhile to be bold and buy aggressively.
Suddenly, all of that is out the window. Suddenly, none of it matters. Once again, Washington has pulled the rug right from underneath us and every one of those positives is now either being overlooked or simply doesn't matter because it is about to change for the worse.
That's what we saw Wednesday with that awful press conference where the president made it pretty clear that there is no hope for anything to happen quickly to resolve what 2013 is going to look like and we are going to see sharp increases in taxes and sharp declines in spending that can trump all of the good news we have been seeing. There's simply no need to hire and plenty of reason to fire until we get there and the smartest executives are going to be like Dave Cote from Honeywell (HON) and not hire to respond to the regular retirement quota that occurs naturally at big American companies.
- Also see: 'Mad Money' recap: be ready for the turn
That means stage one is now upon us: the recovery will be broken by this logjam. That's what it does. I don't even know if you can refute that.
Stage one is hitting with brutal force and it is dragging the averages down quickly. Keep in mind that the Dow Jones is now only up about a couple of percent, less than many European stock markets, including France, and is up only about 1/6 as much as Germany. In stage one everything is guilty until proven innocent, including the companies that are just now reporting blowouts.
Stage two? That's when we try to figure if the selling is done or if it is overdone. The first means you have to pick, the second means you have to buy. The swiftness in which this is all happening, accelerated by hedge funds that remember how they lost their year last year very quickly by not acting, will make it so the selling runs its course before we run over the cliff.
But how do you monitor it to be sure?
Let me give you three ways that are going to put it in a workable context for you.
The first is the Washington-on-TV indicator. This is a simple, easily monitored and perhaps the most important of all indicators. That's when the president or any of the leadership from the Republicans or any of their important minions utters anything about the fiscal cliff.
Right now we know that we aren't on track for a resolution. Time, distractions (Petraues), rancor, they are all against a deal. There is no move to rise above yet.
That means every time someone comes on television you can expect the market to go down. Don't trust any initial bursts of optimism before or after a soundbite unless it is from both parties at once standing at a podium saying "we have a deal." Use Wednesday as a template. When you see or hear about a presidential event, be ready.
We will know when we are close to a deal or when we are done going down because the fiscal cliff is now "in" or fully discounted in the market. That's when we don't go down within the hour after a speech. That's it. That's what's been my indicator in all of Washington's impact on the market over a 30-year period. If we stop going down on talk, then we are at a bottom.
Second, we have the purest of pure plays out there in Lockheed-Martin (LMT). It is a total canary in a coal mine. It's a good company, despite the recent management upheaval, with an outsized 5% yield that will be worth much less after taxes after December.
It got hammered Wednesday, as it should. It will be right in the cross hairs of the government's crosshairs and the fact that it is up 8% for the year is totally absurd if we are going to go off the cliff. This one should be front and center at the upper left on your screen. It might as well be the thermometer for the market and it is a perfect one.
The third? Let's call it the Cisco, Home Depot and PetSmart indicator. These are the three biggest upside surprises since the election and they correctly capture discretionary retail, housing and technology spend. If these stocks cannot hold their gains, no stocks can right now except higher-yielding stocks that are regarded as recession proof, like Coca-Cola(KO), Kellogg (K), General Mills (GIS), Verizon (VZ) and AT&T (T).
- Also see: Cramer: Facebook rally not surprising
Of course we have to monitor employment. We need to look at aggregate retail sales, transports -- they were hideous Wednesday -- and any of the broader commodities like copper and oil to monitor how deep the slowdown will be or if it just rolls right into recession, which is what the stock market's telling us is going to happen. No, that's not too dire.
But those three indicators will tell us if the bad news is in or not and will allow us to begin to speculate that the stock market itself has Washington worried and is therefore somewhat self-correcting.
Of course, there is an orderly path to make it so the slowdown doesn't occur and the cuts aren't all that harmful and the increases not all that hideous. That's why we were not tanking before the election. There was so much momentum going Romney's way in the market that the cliff's harms could be ignored.
No more momentum. No more Romney. No more ignoring.
So watch those indicators. Recognize that the good news is ephemeral and the bad news transcendent. Make some sales of economically-sensitive companies of all stripes that don't have higher-yielding protection and watch those signs.
They will get you through this and, yes, we will get through this, even as we have to admit that the odds for going over the cliff have now increased greatly because the sniping's just begun.
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 BA and KO.
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No more freebies. Executive comps for all must be Clawed Back, going back 5 years.
No more payouts for Failure. Isnt that what you Repubs want?
Businesses should be taxed more for not performing. Just like production workers are paid less for not making production. If they don't make their quota...the rent should go up to stay in business.
That would make room for people who aren't only worried about themselves..
Turn about is fair play!!
To NextTimeUp, and all the doomsdayers out there.
First, look up the word "socialism" before you bandy it about like its your new mantra. There is a social contract in this country, even Ronald Reagen knew that. Oh, what's that? Are you sure? No police, no fireman, no standing military, no airtraffic control, no clean public water, no US Olympic team, no NFL on Sundays, no NCAA hoops in the winter.
Think first, post second. Will decrease the odds of you looking like a nearsighted, dottering old fool.
FNMA provided criteria for a set bandwidth of borrowers. After downsizing wasn't vigorously beaten back by Reagan, the wage-earner bandwidth grew unstable. REAL lenders developed programs that weren't checklist-able and built an industry out of it. In 1992, REAL lenders were able to take old stodgy banks down by offering better programs to their portfolio clients. Among them were homeowners gouged by garbage lenders and raped by the banks who serviced the portfolio. as banks failed, some conspired to compete with nonconforming by inventing Subprime and recruited to pump it. A 1994 survey indicated that more than 60% of America no longer qualified for FNMA criteria. Raines was correct. Banks were irresponsible.
Politics doesn't matter in the long run when it comes to investing. Short run, there are ups and downs.
There is still plenty of money to be made. Look at the trends. Marijuana related stocks are all moving up quickly, thanks to legalization votes. This will continue to gather steam.
People are not going to stop using oil and gas, regardless of what the Greenies try to do. Buy low, sell high, it's so simple a caveman can do it.
They knocked off in responses on MSNBC and that was prior to the election. I will say...I told you so. This administration is an "sham" and as I stated this is all coming out. This administration has proven that it is derelict in duty and this idiot in office shout and probably will be impeached or worse somewhere along the line in the next four years. This should not be a surprise to anyone. The liberals are now looking for a way to get out and leave this "crying" idiot in their rearview mirror.
The "markets" have run out of gimmicks and churning. This will only get much worse. Have a "mattress"....grow a garden. Viva Mexico and let the entitlements roll for Blacks and .... well, you get it.
B. China elects a new leader and he isn't a strong arm military guy. He's intelligent and cooperative for stabilizing BOTH economies. We absolutely have the correct guy in the Oval Office for that!
WASHINGTON (AP) - Republican presidential nominee Mitt Romney is telling top donors that President Barack Obama won re-election because of the "gifts" he had already provided to blacks, Hispanics and young voters and because of the president's effort to paint Romney as anti-immigrant.
"The president's campaign, if you will, focused on giving targeted groups a big gift," Romney said in a call to donors on Wednesday. "He made a big effort on small things."
Romney said his campaign, in contrast, had been about "big issues for the whole country." He said he faced problems as a candidate because he was "getting beat up" by the Obama campaign and that the debates allowed him to come back.
In the call, Romney didn't acknowledge any major missteps, such as his "47 percent" remarks widely viewed as denigrating nearly half of Americans, his lack of support for the auto bailout, his call for illegal immigrants to "self-deport," or his change in position on abortion, gun control and other issues. He also didn't address the success or failure of the campaign's strategy of focusing on the economy in the face of some improvement in employment and economic growth during the months leading up to Election Day.
Hey Folks....dont forget to add in that little part about how (during the final debates) RoMoney
would do exactly what Obama had done, but would have added "Pretty please with sugar on top" to it, is all. HA HA HA HA HA ....When Leno actually ever retires, I say we give RoMoney the Tonight Show to showcase his comedy 'routines'....
Well, nuff said...its off to make a profit for today and ladies and gentlemen, we wont be doing it by hanging out here too long.
PS....and yes, Cramer may be a big putz but sometimes he is Right.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
This is for all the liberals out there that love Clinton
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
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All hail the bull market, which ended the week with a big rally. But it also is starting to look a little like 1987, which suffered an epic blow-out.
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