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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420Comments
Nov 15, 2012 11:46AM
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Words like Quantitative easing ,capitulation, fiscal cliff,Jimmy boy Cramer, makes  me so happy because ,its just another   hole in the boat , . I will either plug it, patch it , buy a new one  sink and swim , or be drowned by a big cat fish because I was noodling to eat and  It will be my fault because  I capitulated off the fiscal cliff and   Quantitative easing, not for noodlers .Hey I need to write a book on how to noodle in the world  of loosing  retirement cash , I knew I'd gain something from reading this catfish poop

Nov 15, 2012 11:46AM
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The Minister of Propoganda for the filthy rich speaks again .....

"We the filthy rich refuse to spend the money we have "borrowed" from the US Treasury at 0.5% and parked overseas until the majority of Americans agree to pay for the infrastructure in which we create and manage our business'. We also demand that you continue to produce at the lowest possible cost and under no circumstances ask to negotiate as a collective. Furthermore we demand that you consume our products via borrowed money for which we will charge you 15 - 20% (even though out cost of funds is less than 2%. You the masses are instructed to work until 2 years before a team of actuary's determine your death date to be. We will provide a voucher for you to see a virtual Doctor in India or Cuba."

Signed
G. Norquist, The Koch SIsters and the Tea Baggers.
Nov 15, 2012 11:43AM
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there never were any jobs created smoke and mirrors
Nov 15, 2012 11:42AM
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I'm going to appoint myself as an analyst.

 

I predict the selling will be over when the buying begins.

 

Nov 15, 2012 11:41AM
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bamas economy will never be good , oh yea its obamas failure now
Nov 15, 2012 11:29AM
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Now a storm is the reason 400K+ jobs cut in a week. The actual storm? or the one casued by 6,000+ new regulations just since the election... ...
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"It's indisputable that we were about to take off in this domestic economy after a slow recovery from the recession."

INDISPUTABLE, ........LOL!
Nov 15, 2012 11:28AM
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Don't let the naysayers get to you, Jim. YES... there will be recovery but the economy won't support deadbeat loafers living on trading for many many decades to come. Associate degrees will have better opportunities next year, MBA degrees won't. Existing administrators can kiss the gravy train and cash cow good-bye... no one needs a pariah. Does it occur to anyone that job blockading is against the law and it would be fairly EASY right now to prove it just by who got in and who did the recruiting selecting and hiring?
THERE WAS NO BETTER TIME to start a small business than the post-2008 to-date period. The opportunities were endless... micro-breweries over m****duced urine-like lager. Everything from re-purpose to recycle to resale targeting the sub-economy. Utilizing terminated expertise to build a machine that knows exactly how to play against business platforms. Essentially, we died in 2001 and lived with mechanical assistance and steerage orchestrated by the Bushes. Did we not figure it out when planes crashed into the World Trade Center and instantly, Bush Sr's crony squad came forth with a completely packaged anti-Terrorism team? Come on... administrators attempted a national take-over via Global Economic Domination and New World Order. It failed and we all know who should be jailed now. What made America GREAT was sweat and labor not screwing your neighbor. Collapse Wall Street and get the cash moving through Main Street. Wall Street, Banks and the Federal Reserve are NOT helping America, they are hurting us. Seniors making more in retirement than they contributed via tax revenues is criminal. We have all the prosperity we could ever want in shifting to naturally re-occurring energy and rebuilding all of our infrastructure to self-sufficiency.
Nov 15, 2012 11:26AM
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BRutus625&STONE4442:i GUESS YOU HAVN`T HEARS THERE`S BEEN 32 STRAIGHT  MONTHS

OF JOB GROWTH.oUR BUINES IS BOOMING, MY FAMILY HAS NEVER HAD IT SO GOOD.wHAT

oBAMA HAS DONE FOR THIS COUNTRY MAKES ME PROUD TO BE AN American.We`ve god

a great President.Wake up and smell the coffee.If you really knew what`s going on you`ld

have all the respect in the world for Obama.

Nov 15, 2012 11:26AM
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Wall street is panhandling for another government handout. And why not, meddling in the economy on wall street’s behalf seems to be the government’s main focus these days. You’d think Article 1 of the Constitution states; government shall borrow, manipulate, cheat, steal, cover-up, and lie to boost the economy, no matter the consequences. Sadly, until they quit, we’ll never know these things:

Which corporations would be in business and which would be gone?

What is the real GDP?

What is the real value of stocks, bonds, gold, and houses?

What are the real statistics on inflation and unemployment?

Nov 15, 2012 11:18AM
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Funny how this guys opinion on the economy changes from day to day based on the newest info.  If anyone kept track of all his failed predictions it would be a long sad list.
Nov 15, 2012 11:16AM
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Best Buy laying off and closing stores, JCP fading into oblivion, Hosetess Brands closing factories and liquidating sending thousands to the unemployment line, Sears Holding that owns Kmart will close stores after Christmas, Supervalue struggling to stay alive with the drag of their Albertson's division. impending layoffs in defense, massive Obamacare layoffs at small businesses, and the fiscal cliff.. Not much to base a rally on!!
Nov 15, 2012 11:16AM
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TEA PARTY IS DEAD. GM IS STILL ALIVE.TEA PARTY IS DEAD. GM IS STILL ALIVE.

 

Cramer believes we will go off fiscal cliff before resolution is reached. I believe we will not. I believe that an agreement on the budget will be reached before December 14th because no Congressman wants to lose money and because the Tea Party is being eaten alive from within their own organization. It's easy to spot the players in the Tea Party -- they're the ones being the most vocal on Benghazi like Senator John McCaine or just plain crazy like Governor Rick Perry of Texas. This is why in a crisis where religion is concerned there should be separation of church and state because NOTHING has been getting done in government the last two and a half years because of the GOP. If we go off the fiscal cliff, which I find incredulous since huge defense contractors beholden to the GOP would lose share, then it clearly shows that the Republicans have failed to grasp why they lost the election. Did you hear Romney and Ryan explaining why they lost? Pals, you lost because you put religion first and your job second. Get it done.

Nov 15, 2012 11:14AM
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  Obama is going to marching us "FORWARD" into oblivion.  He's taking Cramer with him........

Nov 15, 2012 11:10AM
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Cramer believes we will go off fiscal cliff before resolution is reached. I believe we will not. I believe that an agreement on the budget will be reached before December 14th because no Congressman wants to lose money and because the Tea Party is being eaten alive from within their own organization. It's easy to spot the players in the Tea Party -- they're the ones being the most vocal on Benghazi like Senator John McCaine or just plain crazy like Governor Rick Perry of Texas. This is why in a crisis where religion is concerned there should be separation of church and state because NOTHING has been getting done in government the last two and a half years because of the GOP. If we go off the fiscal cliff, which I find incredulous since huge defense contractors beholden to the GOP would lose share, then it clearly shows that the Republicans have failed to grasp why they lost the election. Did you hear Romney and Ryan explaining why they lost? Pals, you lost because you put religion first and your job second. Get it done.

Nov 15, 2012 11:01AM
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I wouldn`t want Obama`s job, but I`m sure he will be more than equal to the task.He`s been much

better than I expected as Pres.Obama makes me proud to be an American.

Nov 15, 2012 10:52AM
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Cramer's an idiot,

WHAT RECOVERY????   IN YOUR DREAMS!!

Nov 15, 2012 10:52AM
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i know a few people whose economy was wrecked by cramer. caveat emptor.
Nov 15, 2012 10:49AM
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The power of positive thinking; just psyco-propaganda? Better to just hate everyone and everything.

"What we're going through now is the collapse of capitalism.  It's only claim was that it was better than communism (socialism), but that collapsed in the Soviet Union, devolved into various fascist & monarchical states elsewhere, & now it's capitalism's turn."
Nov 15, 2012 10:43AM
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This is an amazing piece of garbage coming from someone who should know better.  There will be no jobs recovery and no housing recovery as well.  What in the world do these people think is going on.  We have killed capitalism and the job creators that go with it.  We have shipped all the jobs that could improve our econmy overseas and the jobs left are for kids living with their parents.  The only direction in housing we will see is the movement towards 15 people living in one room together. We are now a socialist country where those that don't wear a blue hat are demonized and the talented and willing just shake their heads.  What person in their right mind would start or run a business in this country now?  The masses voted to take from the rich to spend on themselves.  So those that have will now curl up and live in defense mode and exhibit limited risk in that any positive return will be taken from them.  When was the last innovative product introduced here?  Socialism inhibits the individual taking personal responsibility and discourages personal initiative. We are now Europe and Mr. Cramer delivers this as a responsible journalistic excercise?  So sad so sad.
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