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.



More from TheStreet.com

Dec 31, 2012 2:02PM
More likely that a broad compression hits the markets and many that go first pull their pockets out and cry broke screwing the shorts. Two solid quarters of havoc ahead.
Dec 31, 2012 2:00PM
Just curious Endeavor...Did Mutt freeze to death....On a trip back to UTAH, for a family Holiday Ski vacation ??  Poor s-o-b, he was such a good little dog... 
Dec 31, 2012 1:57PM
In a former job I worked for a company that did a lot of business with government. It was such a joke to get orders from them at the very end of their fiscal year and tell them we could not deliver the goods until a month later. They would always say "well can you at least bill me before the end of the month we need to USE up our budget". They never wanted to demonstrate that they could operated "under budget" because then someone might lower their budget. They could cut 10% across the board from every federal branch and it would be like nothing happend to the services provided by our wonderful spend happy government.
Dec 31, 2012 1:56PM

VOX......The Army Engineers and Troops built a lot of Roads and Bridges in those shidt Countries..


And they built them in a hurry too.....

Dec 31, 2012 1:52PM

I think I'm going to get out one of the old toboggans or sleds, go up on top of one of the barns..AND


Then go flying off the top and land in an old manure pile...


I just want to know what it will be like tonight or tomorrow, when we go over a fkn cliff...?

Dec 31, 2012 1:49PM

Remember...there is no democratic party and no republican party....these are just two minor variations of the same party.....the "money" party.  As long as they can keep themselves in power to enrich themselves, nothing will change for the vast majority of americans.  Both parties pander to their bases, and get people to rally around them and get us dsitracted from the real problems in government (including corruption) by talking about issues that have nothing to do with solving the real problems.  Gun control, gay marriage, what happened in libya, etc etc etc are all distractions from the real problems we face, like excessive government spending and associated debt, climate change, environmental damage and loss of biodiversity.  These are the things our grand children and great grand children will look back and wonder why we failed to act.  They won't look back and wonder about gun control, gay marriage, etc.  The politicians promise more jobs, but they have no control over job creation...if you think the republicans or democrats can create jobs, then you are foooling yourself and ignoring the long term trannds of globalization, maturing economies, and advancements automation. 

Dec 31, 2012 1:43PM
If all the money spent subsidizing oil via the military in the middle east was spent at home on alternative energy we would be fine in about 10 years ...we could also use army engineers and manpower to improve OUR infrastructure instead of sending them abroad to assist other nations geo political interests.
Dec 31, 2012 1:40PM

Republicans are a funny bunch; They have shot themselves in both feet over the last 15-20 years...


Now they will cut off one of their hands trying to get sympathy...


They are not my Father's or Grandfather's Party anymore...

Dec 31, 2012 1:39PM
All you brain dead morons cannot accept the fact that President Obama had to pick up the check from bush and the republikkud parties 2 wars .......

Dec 31, 2012 1:38PM
anyone who thinks our problems are due to Obama, and that republicans have the answers is drinking the coolaid......due some fact checking ....the federal deficit and federal budget have been growing exponentially regardless of which party is in power. Both political parties lie to the poeple by telling them that the "current guy" is bad, and if we put "them" into office then they will do something to fix the system, and then when they get into office they continue doing business as usual. So next time you think "your party" has the answers, I suggest you educate yourself and wise up. Until the people rise up and elec a credible third party, nothing is going to change. Washington will continue to spend our childrens future to finance their wasteful ways and misguided priorities set by special interest groups.
Dec 31, 2012 1:37PM
Just look at the record of his action alerts "charity" for the last 11 years and you would not listen to this moron for advice on yesterday's weather!
Dec 31, 2012 1:35PM
FOXY....Idiots are idiots...Some are born that way; Others, it takes breeding and nuture..
Dec 31, 2012 1:33PM

GOT MILK......Think you were all saved for the time being....


Now how can we apply this to gas pumps?

Dec 31, 2012 1:31PM

Hillary Clinton is in the hospital with a blood clot due to her concussion.Everybody on Fox said she was faking her illness.Everything is a conspiracy with the far right.Hannity,O`reilly,

etc,etc on thatfascist station should beg her for forgiveness.Those scumbags never

will.Their true colors came out once again.

Dec 31, 2012 1:31PM

Even with the major downturn in 2007-2009 ,depending on inclusiveness and investments....;


If you didn't recover and ride a wave?....You went to cash !!....A huge mistake....IMO




Dec 31, 2012 1:29PM

Endumber says - Today's is the end of the Republican Party if no agreement to the fiscal cliff is made.  Oh, the joy of it all!


Just think Endumber all those conservative republicans will be your new democratic brothers and sisters. Of course they will still vote along the line you can't stand and of course they will still elect people you hate but they will be called democrats.

Dec 31, 2012 1:21PM

Brutus assuming you meant a decade thereabouts, not really trying to be correcting, but we probably won't be here for another millennium.....Maybe Earth won't??


There have been many adjustments to the S&P 500...And other Indices.

And Values on Equities have changed several times..

And it doesn't take into Account: splits, dividends,special payments,etc.,etc.


If you were invested in a broader group like the S&P.....MORE THEN LIKELY your value has at least doubled monetarily since then....In some cases possibly tripled if real lucky...

But that would take a little trading and re-adjusting, manipulation and re-investing dividends.

Don't let people like RANDALL drag you DOWN, Man...

Dec 31, 2012 1:18PM

.......Obama's legacy is a 16 Trillion dollar debt and growing.................


Congress is a complete inflexible mess. They vote for their party...not what is good for the country. Insane debt like this is never good and the plan is to increase the debt with marginal  potential cost cutting is completely inadequate.


We're going over the fiscal cliff and on Wedesday will probably  have a 400+ point drop and end on Friday being down 1000 points. The plan is to dump stocks today and pick them up for a bargain late this week.


Happy New Year's to all...and lets hope the 4-years of Obama passes VERY quickly!!

Dec 31, 2012 1:10PM
If I read too much more of this doom and gloom......I going back to the couch for a nap and get up or out from under my blankets on February 2nd....
Dec 31, 2012 12:45PM

"Stocks haven't been a great investment this millenium.  More than likely, their long-term performance will continue to be lackluster for the foreseeable future.

S&P 500

December 31, 1999 - 1415
December 31, 2012 - 1408"

Sure, if you only want to look at the idices.  Next time try factoring in dividend payments and their reinvestment.  You do know how compounding works, no?  I've done quite well in the market over the last decade.

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