Washington pulls the rug out from under us

With the recovery possibly stalled, here are 3 indicators that would signal the selling is over.

By Jim Cramer Nov 15, 2012 9:54AM

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CorbisIt'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.

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).

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.



JimCramer'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 BA and KO.



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Nov 15, 2012 2:58PM
And it's our own faults for not demanding more of our Congress. We should have fired all of them, and let them know that they would not be voted back in after the deplorable handling of the credit crisis. All they have done since Obama came into office is in-fight with one another like little kids in the schoolyard. Recovery was put on hold and took steps back when our nation's credit rating came under fire, so why would it be any different now? If we really wanted positive change, we as a nation would have voted to put the right people in place who could work together. Why doesn't the media push that story... making congress accountable for their in-fighting? Instead, the media wants to speak of doom and gloom as that is what sells. How about pushing for a solution? How we as a nation allowed the status quo to continue by not shaking up the seats in Congress blows my mind. Democrat or Republican, we can't trust either to work with one another, so we should have shifted the balance ourselves and gave the president a house and senate majority all of the same party. This checks and balance system of two parties is no longer working the way it was intended. It needs to be fixed. And Boehner would rather make a point and push his dinosaur party forward than do what's right for the people who he is supposed to be representing. We voted Obama in for a second term, now the Rep. party needs to fall in line and support his policies... instead they are only supporting the Rep. party's ego and personal interests. And we as voters are supporting this madness. If I went about my job like Congress does, I would have been fired long ago. We all would have... unless of course you hold a seat in congress... then you can line your pockets, do as you please, and not have a care in the world for anyone but yourself. That is the climate that is being cultivated in DC right now... accountability is no longer in the zeitgeist.
Nov 15, 2012 2:49PM
The problem is not just about taxing small businesses more.  Its about the villification and the demonizaiton of said owners of these businesses for being successful.  Why work your butt of 60-70 hours a week to build a business only to be told by your "leader" that you are the cause of the worlds problems?? This kind of rhetoric only serves to divide the business owner from his employees and thus the net loss of jobs not the gain. 
Nov 15, 2012 2:41PM
Wow...someone else that so full of Sh*t..Your like Mitt a flipflooper. one week it's this then next week it's someelse else....No wonder the country going to crap..people listen to **** like you...
Nov 15, 2012 2:38PM

Wake up America!

It seems nothing has change, we just finish an election, and we have to listen to Ryan the liar advancing his wonderful ideas of how handle the coming Fiscal Cliff, this guy needs to realized, Mr.Obama is President. We just herd Mr.Boehner give his talk a few days ago about the Fiscal Cliff, and other economic situations he thinks he has the answer how to it fix, as usual! The things he said that infuriated many of us much was his statement that he wishes the elections had turned out another way, we thought it was an improper remark for the Speaker of the House to make, indicating one more time his personal feelings rather than showing a professional dedication to his job, lacking the vision to work fruitfully for the citizens of the USA. He’s contending us one more time in his own personal hypocritical super bully hero attitude! He has a recurrent amnesia problem like Mr. Romney had, and seems to be having troubles learning, and accepting from the American people the facts after the election. Sir, Mr.Boehner? Are you there in the House of Representatives? We just elected Mr. Obama as your President for another four years. We all truly hope you and your followers not trying to perpetuate the same old anxious lyrics coming from the mindless abusive House of Representatives, following yours and theirs perpetual intransigency and mental aberration in insisting in no tax increase for the rich, and emphatically suggesting cutting the entitlements programs. Your wrong ideology shows all of you wanting to sink our old citizens deeper in a hole of hunger, and miser their health care. Come to your senses, all of people in Medicare have earned their Medicare after years of dutiful work, but remember as you try your dirty tricks on them one more time, as you all well known for a long time, the SS is not a part in any of these talks, so make sure not to monkey with it! Keep holding back America, and fighting for the very rich, while 46 million Americans are in poverty, and I promise, we will never ever forget all of you in the House of Representatives. Be smart, work for the people that have waited over four years to overcome your permanent intransigency in helping the American people, we put you there; it’s your responsibility to the people!

Nov 15, 2012 2:34PM
Jimmy, sorry but you as a loyal supporter of this failed President are stuck, like the rest of us, with the tragic consequences.  Obama has hoisted himself on the petard of "fairness" by demanding that the rich pay more in taxes, which will have zero impact on our debt crisis.  Of course it is a false premise and economic recovery depends on more money in the pockets of small and large business alike, to create more production and paying jobs.  More paying jobs creates more money in the pockets of middle class consumers along with more tax revenue, which under the watch of a responsible steward would result in debt reduction.  But alas, you and other progressives have saddled us with more gridlock for the sake of ideology.  Shame on you.
Nov 15, 2012 2:31PM
max sparticas

Are you simply a Buffoon or can you produce a simple spending transcript, showing who spent what and why our debts so high.


max -

MG doesn't care about the truth............................ because it's not HIS truth.

Nov 15, 2012 2:31PM
The Doomsday responses are the same ones "capitalists" had when the country ended slavery (business will die without free labor), when T.Roosevelt broke the trusts (nobody will want to be an industrialist if they can't have a monopoly), the market collapsed into Depression, when FDR created Social Security and Medicare (surely the entitlements will destroy capitalism), when tax rates hit 90% under Eisenhower, When inflation and interest rates were double digits in the 60s and 70s, when Reagan's tax cuts were sure to explode inflation and put everyone out of work, and Clinton's tax hikes were sure to do the same.

As of today, this country is still stronger and wealthier.  Sorry, the end of the world is not near, and you all will just have to adapt.
Nov 15, 2012 2:23PM
LOM said;
"Stop the needless, nattering nay-bobbery and let the big guy do his job."

At this point, I agree. Let him do whatever he wants for four years, and see what happens.

Then will you stop blaming everything except the one person who asked to be accountable to the American Public?
Nov 15, 2012 2:23PM

Mirage, You repeatedly call Obama a borrow and spend socialist, and you repeatedly fail to show me the numbers when I challenge you to show me the proof. Are you simply a Buffoon or can you produce a simple spending transcript, showing who spent what and why our debts so high.

 Spend by Bush and Republicans,                              Spending by Obama, 8 year projection,

 Iraq, Afghan wars    $1.469 trillion                              Bush tax cuts          $425 billion

 Bush tax cuts           $1.812 trillion                              2009 stimulus         $711 billion

 Added discretionary $608 billion                                 Discretionary         $278 billion

 TARP                       $224 billion                                 Healthcare              $152 billion

Medicare D               $180 billion                                 Defense cuts         -$126 billion

2008 stimulus           $773 billion


Total Republican spending $5.07 trillion.    Total Obama spending $1.44 trillion.

The fact is spending under Obama is at the lowest level in 60 years just 1.4% annual increase, compared to 7.7% annually under Republicans.


Nov 15, 2012 2:23PM
Cramer is merely a bald headed stooge & puppet of Wall Street.
Nov 15, 2012 2:21PM
Cramer and recovery in the same sentence is an oxymoron.  I love how he tries to hide behind his bad calls (which is all of them) to state as "fact" there was a recovery in the first place.  Central Bank printing at warp speed is NOT a "recovery".  Cramer = Corporate stooge and corrupt sellside puppet.
Nov 15, 2012 2:18PM
Very_Lame said;
"You can't use GOP and support in the same sentence. They are anti-Americans. "

No V_L, it's you who are anti-american. 
The majority of us on here can get along, even though we don't agree.

You, and a few others, on both sides, on the other hand, only try to tear others down and intimidate. You are a maggot.
Nov 15, 2012 2:15PM
Stric and VL are right!

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?

Nov 15, 2012 2:14PM
The stock market is a clear indication what they sense of obama!  It has been down greatly  since his re-election!  Not much hope for America!  We will all pay!!!!!! 
Nov 15, 2012 2:08PM

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!!

Nov 15, 2012 2:06PM

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.


Nov 15, 2012 2:05PM
''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.''

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. 
Nov 15, 2012 2:04PM
Obama wanted the job. 

You libs wanted Obama. You got it.

He rammed Obamacare down our throats without GOP support.

No more excuses and blame.

Get it done.
Nov 15, 2012 2:03PM

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.

Nov 15, 2012 1:58PM

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.

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