Are investors overreacting to possible Fed tapering?

It's conventional wisdom that's creating the havoc we are now stuck in, yet this isn't the end of the world.

By Jim Cramer Jun 12, 2013 10:02AM

thestreet logoDo you accept the beat-down like a man or do you actually fight it?


It's been almost a month since David Tepper came on CNBC and laid out a blueprint that said the Federal Reserve's tapering is necessary and will ultimately be good.


That thought had been impermissible by all of those that have waited for the tapering or had sold before the tapering. It was an icon-smashing moment -- with the icon having said that the patient would die as soon as the Fed took off life support. With it, a hideous decline not can but must occur.

For several weeks there was a grudging acceptance by many that maybe Tepper was right. That's because he was forceful, not "on the one hand or on the other," and he had made a lot of money, so he was no joker for saying so.


But, in the past 10 days, Tepper's view has been forgotten. It's been replaced with a cold, hard reality that Tepper is dead wrong and that the reverberations from the end of tightening will spell the end of the bull market in the U.S. and everywhere else. That it is inevitable, and that the beat-down will be severe.


We are in a mode now that says, if you don't sell, you are a moron. Along with the Fed's lack of bond-buying comes the end of any hope that China's market will ever rally; a total implosion of Japan; the denouement of Europe and the euro; the beginning of the end of Brazil and Russia and India; the crushing of all commodities; and the stoppage of any profit growth.


Arrow Down (© Photodisc/SuperStock)The only thing that's not being attributed to the end of Fed largesse is an epidemic of fatal illness, a tenth plague like a wave of death, with only the bears who smear bear blood on their doors to be spared.


Come on, you know this. This is the state of affairs we are in now.


Is it right? How about this? It doesn't matter if it's right -- we simply can't handle the decline from these levels without bailing.


But against this is the calculation I did last week that showed the downside per stock if the life support gets taken away -- the actual point declines from companies that may or may not be seriously impacted by the end of quantitative easing.

So take the banks. We know that this sector is upset by currency turmoil. That's supposed to be the end of anything good that can happen to them. In fact, on Tuesday we had reports from Charles Peabody, a known analyst, saying the currency losses will be horrendous for the international banks -- $7 billion, to be precise, by Citigroup (C). Despite Citigroup's attempts to deny this, it became common parlance within 15 minutes of a story on Bloomberg, spelling out the banks-as-deathtrap theory, even as the notion was refuted intra-article by an analyst with a better record than what Peabody has. But who cares about records when you are in the grips of Fed tightening? Yes, let's call it what it is: Fed tightening.

Meanwhile, what's happening in the real world? Certificates of Deposit -- which I monitor through Rate Watch, the keeper of the numbers -- has shown that the five-year CD has gone down in yield, with the differential now at 20 basis points in favor of the banks. That's huge. That should be the talked-about number. But disaster is in the air, and if you are an analyst who is prone to thinking disaster, you have the ball. So don't go all LeBron on me. Go to the hoop.


So nobody cares what's relevant. Instead we care about the unintended ramifications of the Fed seeking to stop the economy in its tracks. That's another "truth" that's been impacting the housing stocks, which benefited in an outsized way from the Fed giveaway.

Of course, that's flagging just one group that's big in the S&P 500 ($INX), and giving you the reality of the net interest margins with the Fed walking away. A second group? The industrials. These stocks have shown signs of doing better, courtesy a nascent return to growth, as represented by eurozone production numbers Tuesday night. I know, let's just dismiss that out of hand as impossible. Third group? The techs. They, too, are impacted by a turn in Europe and a turn in Japan, even despite endless attempts to say Abenomics isn't working. Fourth beneficiary? The drugs. Why? Because the dollar's been weakening against Europe, a major spur to earnings.


I could go on and on, but the simple fact is that this isn't the end of the world. We just have to accept the portrayal of it for the moment. Which brings me, full circle, to what I wrote at the beginning: You have to take the beat-down, because you don't know how long it will last or whether it will be as devastating as presumed. In other words, despite Tepper's disappearance from the scene, I think he will turn out to be right after some initial turmoil.


But you have to accept that, right now, at this very moment, he is viewed as a total Pollyanna.


I am betting that's wrong. That's a minority bet, but I am stuck with the havoc being created right now by conventional wisdom before I can be freed by its aftermath.


So is everybody else.


The choice for the beat-down is yours. It may be worth taking, too, even as that seems to be ludicrous for everyone except for those who have been right all along so far.




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

Jun 12, 2013 10:38AM
Where would the rates be without the fed's intervention?  No one knows the value of the stimulus.  My guess is credit card and unsecured loan rates - the same, auto loan rates - the same, mortgage rates - 1.5% higher, short and long term bond rates - 2% higher, bank CD rates - 2% higher.  It seems that the stimulus is subsidizing the housing industry at the expense of the savers and investors.
Jun 12, 2013 11:15AM
$85 billion/month in QE in return for $35 billion in GDP growth per month.  So yeah, there's 50 billion good reasons to worry about what will happen when QE stops.
Jun 12, 2013 10:50AM
The market is going to get extremely nervous, shaky and twitchy,(wild ups and downs) when the Fed finally has to slow or stop the printing press's. The Fed can't keep interest rates near zero indefinitely, doesn't matter if the Fed tries a slow withdraw or goes cold turkey things are going to get very very rocky we are in uncharted waters. A lot of people may get seriously hurt if they are not  careful. Do a slow withdraw or go cold turkey both options sometime's kill the addict, (market/economy).    
Jun 12, 2013 11:22AM

Mirage I consider us to probably be Middle Class...


We haven't lost anything, and are actually gaining somewhat and have more then recovered, exceptions might be property value.

But as explained to me, because of farmlands or larger parcels, we may not be at a loss either.

I know many (what I consider) Middle Class and most have not changed their lifestyles one iota.


I would somewhat agree that some lower Middle class have "not done" as well, but can usually be explained by poor choices, little savings or investments, over extended on debt, reverse mortages and or just plain living beyond their means..

And pretty much agree the poor or lower class has taken the brunt of the most losses.

Jun 12, 2013 12:25PM

Because of CGT1.....I decided to be a scumbag for a little while today..

Jun 12, 2013 10:56AM
48 minutes ago
DO NOT get all confident because we are up over 100 points this morning, very little has changed down here, manipulators still in control, we have the signs of another sucker's rally; in fact a minute or 2 ago they called to sell off....Be cautious, cheaters own things here like they have all week sadly...More later.
Jun 12, 2013 12:05PM

Ice Cold....That may be occassionally, but much of the time it's the same drone; Similar to "have a Merryday"....

When he comes out of the Box on a GD spring....I'm gonna call him/her on it...

Too many people read this and other crap and except way too much as being "honest to God" truth.

Americans have gotten "very gullible" in the last 20 years or so...

My Generation was not like that, "we always questioned", even if we did get in trouble for it;

We learned from those experiences, if it didn't kill you first.

Today "very few question" and allow such things as what that Snowden kid exposed...

Is he a hero to some?, maybe....Or is he just going to be another goat, because of propaganda..

I have no personal feelings about the matter, BUT don't think he has damaged any important "security issues" of America, but only "exposed the Government" for the lack of respect they have for their Citizens...And the "usurping" of our Constitution...

We use to as Americans, decry this type of behavior of Foreign foes and other Governments...

Now we accept it as a normal way of life....bullshidt.

What that Army kid and the azzhole from wiki-leaks did is totally different and they should be executed for it...

Snowden only did what he thought was "right" for the average American to know..

So anytime I see a complete distortion of facts...I'm gonna raise hell..

Jun 12, 2013 11:27AM
I wouldn't get overconfident about we middle class folks escaping anything quite yet.  You folks do realize that we are those in the crosshairs of the New World Order don't you.  Perhaps we will live out our lives holding onto what we have but the arbitrage of 7 billion others working against 315 million Americans is not good odds. We have in essence been thrown to the wolves.
Jun 12, 2013 12:31PM
Funny how Jimmy mentions Lebron James since they both makeup  just as many excuses when they fail to perform their Job. Both vastly overrate themselves. The Talking Heads definitely overate the skill sets of Lebron. Just as the Global Feds have gotten lost to what fuels a true Recovery, Jimmy and Lebron has lost sense of what it takes to have real creditability. You own up when you fail and you don't search for every excuse under the sun to explain your lack of productivity.
Jun 12, 2013 10:44AM

i would think the standard school learning of supply and demand would apply.  if $85B was removed from  the demand side, there would be an affect to the supply side. 


there has to be a result.  now will that result be good or bad? 


i think it's good that is MUST stop. 


i think it's bad that with all that cash flowing around not that much made it's way into MY pockets!

Jun 12, 2013 12:58PM

I was not contending earlier that the Middle Class is doing fine...


I would sooner re-classify....That the Middle Class has "two distinct" maybe 3 classes within itself..

And the lower end of the MC is slowly falling into poverty or the upper levels of the lower class.

That's if a person is willing to accept that we have 4-6 Classes of Citzens in our Country now..?

And I tend to agree the MC, has fallen behind for maybe 3 decades, there abouts.


The recent downturn had or gave us a rude wake up call....It hurt a great share of the MC immediately in my opinion...The poorer citzens it took a little more time...

It may be true that 50% of the MC...Lost several billions in savings, home values and then jobs.

Much of the MC, possibly made further mistakes, jeopardizing their stature..

I have no exact figures at present to tell, and they change on a monthly or yearly basis.

I saw many give up and they lost more by doing so, others hung on and figured ways to keep themselves from drowning....This is typical of History repeating itself.


The wake-up call should have served the younger generations well, if they paid attention.

I'm pretty sure the Depression was a wake up call for our G-parents and Parents, but they also found ways to survive...Many of us will survive the same way...Many will not do as well. 

Jun 12, 2013 11:01AM

Just enter, you're an IDIOT....

"10,000,000"(with an M) newly retired baby boomers, PER YEAR".

Yup, that's 30,000 boomers a day, "hitting the bricks."

I didn't know we had that many left...

But it surely should take care of "creating new jobs."


Don't really believe or see why they would be "pulling out $40,000 on average" either.

When the average boomer is waiting until 65 or older to retire and going on Soc.Sec..

Did you used to write a column for FAUX news...??

Some fools might really believe the "crap you spew."

Jun 12, 2013 10:39AM
Inflation, inflation, inflation, inflation will come back with a vengeance. The fed needs to keep the real inflation rate between a deflationary 1% and 0% inflation. Will they do it, this will be fun to watch.
Jun 12, 2013 11:35AM


Well, I don't know.  Just Enter has posted some good stuff over the years, much of which has gotten me thinking.  So, I think he's a good source of thinking outside the box.


Anyway, remember.  After people retire, all they do for the rest of their lives is spend money.



Jun 12, 2013 12:33PM
Tog you can be the scumbag but I call dibs on manipulator!!!!
Jun 12, 2013 12:39PM
I have heard and seen from various sources that the FED may now account for 70% of Treasury Buys. So Jimmy, who going to replace that? Who's going to accept the rates/assets of what's left on the Fed's balance sheet? Will they just wash away the DEBT setting the stage for everyone else to do likewise? I don't know the soothsayer you mention but I highly doubt the guy has much street-cred.

Corporations are sitting on Record CASH and Profits so if anyone might say anything, the FEDS lower RATES have effectively helped only ONE Class of Americans while they say dam everyone else. With the Global Markets as they are and most workers without the stones to do anything about current working conditions, don't expect any help from the Barking Dogs, now or later. We have let them get away with ZERO wage growth for the Middle-Class for Decades, why would anyone feel that will change going forward.
Jun 12, 2013 1:49PM


I've got the COP.  $61.03 is a good price lately.  I'll have another $3,000 to invest in another two months, I'd prefer picking up more COP if the price is right.  I don't think there's any point in waiting for Bernanke to pull the plug on the funny money to get a better per share price.



Jun 12, 2013 1:23PM

Evil or Ice Cold...Can't remember which had an interest in COP ??


I filled a small order of 50 at 61.03 earlier, about the lowest I've seen it since early May.

I'm worn out on this..

Got to do hoeing in the Garden and weed whacking..

Then I'm gonna pick up a couple friends and hit some Casinos...

You all have a pleasent day..

Jun 12, 2013 1:20PM


If the Fed indeed is buying collateralized debt obligations every month, what are they ultimately going to do with them?  Nobody wants them.  If they're buying them with our tax dollars, then I'm investing in collateralized debt obligations through my tax dollars.


I kind of wasn't planning on investing in CDO's any time soon.  One mortgage is enough for me to sweat.



Jun 12, 2013 11:09AM

Well if you are/were invested in REITS, you would certainly think Investors or Markets are over-reacting.

And I wouldn't think the FEDS wouldn't do any "tapering" for at least another 5-6 months.

There hasn't been any true actions or statements to think otherwise.


***edited for*** for would not or wouldn't.

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