A fiscal cliff investment strategy

Retail is the sector to play if our elected leaders can't reach a deal.

By Jim Cramer Dec 31, 2012 10:31AM

thestreet logoCash register Hill Street Studios Blend Images Getty ImagesLet's say all goes badly and we go over the cliff. What do you do? Given the mercurial nature of politics, you need a plan that embraces the short-selling or put buying of the segment that would miss numbers anyway, even if the cliff were resolved, so that if we get a blip up on a solution the group can be re-shorted into strength.

That group is retail.

My preferred way to execute this strategy is to sell short or buy puts on the Market Vectors Retail ETF (RTH). Here's why:

First, we know that somebody's going to get hurt: the poor, the middle class or the rich -- maybe all three. They will all react by saving more until the coast is clear. That's terrible for retail, all retail, but especially the dollar stores, which have acted terribly, and the discounters -- think Wal-Mart (WMT) and Target (TGT).

Second, the weather was so bad, and the psyche so negative -- look at retail correlative Consumer Confidence -- that you can't own the strugglers: Best Buy (BBY), Bed Bath &Beyond (BBBY), Kohl's (KSS), or even good ones like Ross Stores (ROST). I would point out that Macy's (M) fares badly in this world, too, with a heavy coat segment that must be discounted.

Finally, I would not trust even the strong home themes, at least for now, because they have run so much: Williams-Sonoma (WSM), Lowe's (LOW) and even one of my big faves, Pier 1 (PIR). I would be quick to cover this cohort, though, simply because it is part of a larger theme that will be hard to dislodge -- the higher price of homes.

All of these would be short-term plays. And if you are worried, I would go long Costco (COST) as a hedge because I believe it is the default play for shoppers.

I would do this trade right away and double down next week if there is a cliff jump because I believe you will get a barrage of number cuts that will make things easy to stay short.

I am making no judgments on the resolution of the cliff itself, just on the quarters to be reported because of a uniquely poor set of circumstances that will hit a reset button on the whole cohort. It can be looked at to the long side once the numbers are through cutting and the inventory is worked down to where gross margins can expand again.

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 has no positions in stocks mentioned.

 

 

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95Comments
Jan 1, 2013 3:19PM
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BTW......CLASSIC, If you are going to use $10 or $20 dollar words...(even from the Bible).

 

THEY SHOULD PROBABLY BE SPELLED CORRECTLY.....!!

Think you might have meant:

 

"GARRULOUS" from Latin; Meaning: Rambling and wordy,given to continual or glib talking...

 

PLEASE TRY TO DO BETTER, for inquiring minds to understand...

And Happy New Years also...

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Mr Cramer,

 

It is money.  Not monopoly.  It is real.  Not a game.

Dec 31, 2012 5:17PM
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It was a fantastic day in the Markets in case you hadn't notice...Wonder what Weds.morn will bring ?
Dec 31, 2012 5:13PM
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Lots of 10 Dollar words in the Bible, Classic.....Used to read years ago, Wife has read most of them.

 

Much of it was written by old men and crazies....That thought they saw or witnessed something.

The big words are from old languages, other then English and other old English words that are just put there to confuse un-enlightend into wonderment...

What always bothered me is what has been lost in translations....

 

First you have to understand, then believe or accept; But better yet go out and touch the World for the real truths about Mankind..

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Problem is SPECULATION.  I am a LONG TERM investor.  I want DIVIDENDS.  Why pay millions to the CEOs.  Those people are our employees.  I want investment in quality companies that pay ME to INVEST in them.  Why speculate in companies that might grow, that might pay dividends, and all the while paying CEOs millions?  I looked at a small cap 5 dollar a share Canadian company that invests in oil, agricuture and gold.  Has no outstanding debt.  Looked good until I saw.

1.  The CEO had a 2 million dollar salary!

 

2.  2% of total company worth was paid for advisement fees yearly to a parent firm.

  

3.  What is this CEO doing to EARN that 2 million a year salary?

 

Needless to say, I am not speculation with them.  Why would I?  The advisement firm and the CEO win where they make me any money or not!

 

That is all speculation is the guys at the top assured a profit (ie, high salary and advisement fees) and for me a gamble.

 

Dec 31, 2012 3:28PM
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I think it's nap time.....Stocks are doing pretty good today...At least some of them..
Dec 31, 2012 3:17PM
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Gas won't go down until the Democrats take back Congress. The OIL LOBBY has been solidly Republican since the 1920s when Henry Ford sold his soul and agreed to produce gas-burning engines, not electrics. Think where we would be now if he had done the right thing?

 

This Congress is lost cause. Imagine getting elected to represent your people then going off on a personal tangent and instead representing your religious beliefs and trying to force your religion down the throats of our citizens and our children. We are a nation of immigrants. Does the GOP not recognize Musims, Indians and Asians have their own religious beliefs? The only thing I have ever seen religion do in this country is cover up for sex offendors, rip off the IRS through shady filings designed to cover personal Mercedes, personal jets, personal helicopters, personal ranches or retreats and girlfriend expenses. You're telling me it is ok for the Mormon Church to invest in shopping malls and commercial buildings at a profit and pay no taxes? Congress needs to be thrown out now for illegally violating the sanctum between separation of church and state.

Dec 31, 2012 3:17PM
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You should make damn good money..If the buildings are connected, you won't have to pay any taxes.

Sounds like a plan...

Dec 31, 2012 3:15PM
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How did we get to a 100 ??....Replies.?
Dec 31, 2012 3:12PM
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Now we are moving into the Pot and Kettle part of today's session, eh...?

 

Shidt, next it will be people calling each other Republicans or Democrats..

 

Or my Favorites, Bush this, Obama that.....

Dec 31, 2012 3:04PM
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The American people have met the enemy, their elected government. WAAAAAAAAAAAAAAAA!

Who cares! Make sure you know where they live, just in case you want to pay them back personally.

If they're Republicans, hugs and kisses, however you only have to kiss one guy, he isn't elected nor government, he is Grover Norquist, and it will make him feel dirty.

 

If you're Democrat, prepare for an orgy. or at least a BIG, I mean HUGE **** and aim it at Mr. Norquist, it won't solve the problem but it will and make him feel really dirty and will result in the release of a lot of tension, frustration and anger for about 30 Minutes. You will slowly then come to fully acknowledge that they, the Republicans and Democrats have been jerking you around to their benefit all along and the fiscal cliff is only a distraction so that they can get away (with it).

 

Doofus Americanus will be left holding the bag and proclaiming out loudly like the 1940's cartoon characters who have just been DUPED and has a SUCKER written across their forehead, yelling out loudly, where did he go! Where did he go! While looking around for his assailant..

 

Like Churchill said, you can count on the Americans to do the right thing after they have exhausted all the alternatives. However, as a Republic we are a little long in the tooth and  our future is really in doubt - as Lincoln stated, that our country will never be destroyed from (without) a foreign invader, if we are to be destroyed it will be done from within.

Dec 31, 2012 3:02PM
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Why even write this story linking it to the cliff when these stocks should be avoided anyway, Cramer? You knew from the futures on Friday afternoon that Monday was going to be an up day. Never again in the history of mankind, barring alien invasion, will you see interest rates this low again and home prices this low again. If you have good credit, get out there and start buying real estate and investing in global powerhouse winners like Walt Disney (DIS) because there is zero inflation and this market is going through the roof between now and 2015. When things are this low, this is when you need to be investing for the long term profits and not day-trading. This deal will get done because if it doesn't the Republican Party will be only an ugly reminder of an evil past where the rich only cared about the rich. Either way, the GOP has been severely damaged going forward because the 60 million illegal aliens that they let in here to bankrupt us voted for Obama, not for the GOP. Adopt an identity card or work visa that we can monitor and tax immediately and you will instantly create more money for the U.S. Treasury. Also, shoot-to-kill orders need to be implemented at the border so people start taking our borders seriously. Have a general amnesty and charge the ones already here $1000 to get an identity work visa then fine and deport the rest after a certain date. Enough is enough. Is not obvious that the country is collapsing under the weight of so many illegals, so many gang members and so many freeloaders? We waste too much money on drug education, prevention and prosecution. If you are in possession of an amount of drugs that warrants you to be a drug trafficker, the penalty should be DEATH. Not life in prison, not 25 years, DEATH. These people are destroying society. If a child or adult commits a crime with a weapon because you left that weapon unsecured, you should be forced to pay a fine and be imprisoned for your stupidity and pay restitution to the victims. Why would anyone leave a machine gun unsecured for a teenager to get and do harm to another with? So many simple things we can do to end the madness.

Dec 31, 2012 2:47PM
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Compromise is how we got into ths mess. I say NO more and when th debt ceiling debate comes up, vote only to LOWER it and let the cards fall where they may. Any legislator that votes with the main agenda of being reelected, is not fit for office. If over the cliff becomes reality, republicans should take the blame with an eye toward economic recovery at some point and do what they were elected to do. Any politician not willing to risk their political future to do the right thing for the country, is simply a prostitute and void of integrity, which I dont think bothers most of them.

Once the government learns to adopt a mind set of aiding and supporting, guiding, facilitating, instead of CONTROLLING, We will all be better off.

The just announced DEAL is nothing but a deceptive way of maintaining status quo.

Shameful. Also no mention of the already mandated tax increases hidenn in Obamacare. 

Dec 31, 2012 2:47PM
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After they make a cliff deal,hows about doing something about the biggest draw on my budget - the rediculous freakin' GAS PRICES !!! Oil over $91 and climbing,gas prices have went up 14 cents in two days here.
Dec 31, 2012 2:37PM
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VL is showing some desperation in his post. Good, he & others that voted for this mess deserve it ! So I won't be the least bit concerned since I've already taken steps to 'glide' down for a soft landing when congress does NOTHING! I'll continue to take care of my own (family & clients)

BTW:  when your hungry & starving due to the drought in the midwest; we'll still feed you- whatever your politics!

Dec 31, 2012 2:24PM
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To start we need to reduce the senate and congress by 50%.  Cut their staff by 25% and install a flat tax rate.  There's a quick eight billion a year.  Then maybe just maybe someone will catch our drift.
Dec 31, 2012 2:13PM
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Got quiet..Lunch time must be over with...?  Boss got a little tougher, huh.
Dec 31, 2012 2:11PM
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Classic, that is hilarious; You of all, asking someone to prove a statement...heh,heh.

 

BTW,  that $10 dollar word...Is that something to do with Lady GAGA...?

 

Or is it a new-found dinosaur fossil.?? 

Dec 31, 2012 2:07PM
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I smoked a Pall Mall about 15 minutes ago...
Dec 31, 2012 2:05PM
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DLH.......Many Large Corporations and School systems operate the same way.

 

Of course most of the Schools are broke today.

Except Colleges and Universities, which many  get endowments this time of year.

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