6 sources feeding this market

A torrent of foreign capital is poised to flow into the US.

By Jim Cramer Apr 8, 2013 9:02AM

thestreet logoStock index copyright Image Source, Getty ImagesToo many people are mystified by this market. I know Friday threw me for a loop because that employment number, even after the revisions, was simply awful. I think the report can be totally explained by our Fear Monger in Chief -- i.e., President Barack Obama -- who scared the heck out of everyone as he talked about the massive job losses coming from sequester. I am sure that's the case, but the real impact here was similar to the U.S.'s pre-cliff non-dive, when the country's business was frozen.

 

Surely the president must have advisers telling him the way businesspeople think, and how everything is about confidence -- confidence needed to make a bold expansion. But they seem to have no impact on him. That old "have to meet a payroll" dynamic eludes this president, and so it will be until we get another one. The president has total empathy for the downtrodden and unemployed, but he has no real handle, or holds even downright antipathy, for those who would hire them. That, as well as a blind spot for the hiring that oil-and-gas does, contribute mightily to the marginal hiring that could be done in this country.

 

The stock market, by all accounts, should have gone down big Friday. But it has trouble declining even though individual companies are poised to put in earnings issues, particularly among international tech and domestic-construction businesses, as we we'll likely see this week when earnings season begins.

 

However, if you strip out the individual earnings, you will see that the liquidity in the system -- and not individual earnings or government supports -- is the bid underneath that keeps giving.

 

Consider these sources of stock market capital.

 

1. The Federal Reserve's amazingly low rates make it so that we simply can't invest in bonds or CDs and be responsible fiduciaries, either to ourselves or to pension plans. Everyday CDs from the halcyon days of the middle of the last decade, when rates were going higher, will come due -- and the dramatic decline in the rollover CDs should force that money into the stock market. Invariably I hear that this flow won't amount to a lot of money. Just dismiss these people out of hand; they are either short or ignorant.

 

2. The liquidity the Fed is pumping in will soon force the hands of our banks to lend, because they can't make money off any other investment. They aren't allowed to pay out as much as they want in dividends, nor to buy back as much stock as they want, so they will lend.

 

3. Cyprus was a seminal event not for what ultimately happened -- confiscation from the rich, who had thought Cyprus was Switzerland -- but for all people in European banks. It has to send chills through the rich that the European Union pondered something that is unthinkable in the U.S. That money now stands to flow here month after month after month. It was a windfall for the U.S., plain and simple.

 

4. Once the money gets acclimated, the foreigners should sense the same thing we have realized -- buying stocks may be the best way to get income. So they're set to put money in the 4% yielders, now becoming 3% and so forth.


5. Last week, the president put forth new rules that say the U.S. will no longer tax foreign pension funds for investment in American real estate. As a result, the most favored part of the American stock landscape -- real estate investment trusts -- will get a whole new cohort of potential buyers. The "investment-ization" of this once-minuscule area of the market has to be noticed, and REITs should be choice investments for many of you reading this.

 

6. We speak a lot about how corporations have tremendous assets overseas, and how with breaks they would come here. I think the more important issue is how strong these balance sheets are. This is a godsend for when confidence returns, and it will return when the president and Congress either accomplish something or just cease to be important because there are no new deadlines. These manufactured crises are the only things that really stand in the way of hiring.

With earnings season upon us, we are, of course, at a critical juncture. I have seen many a survey showing an inordinate number of warnings ahead of this quarter. I think that's an overrated statistic. The simple fact is that we're seeing a secular change in the technology world -- out of expensive hardware, including personal computers, and into handhelds or cloud-based systems. For most companies, the change is happening too quickly to have produced a reaction. That and Europe are a killer to earnings; the latter has been a bedrock investment for our tech companies, particularly Dell (DELL) and Hewlett-Packard (HPQ),

 

What to watch for, however, is the bounce-back. Remember that, when companies warn, they do bounce back now. Sometimes they climb to an even higher level vs. where they came from. That's been particularly notable in Darden (DRI) of late, which has been on fire in a world where gasoline is too high and employment is too low, but yield is just right.

 

So at this moment you may think all is going wrong for the U.S. in terms of the actual statistics that determine and gauge an economy. You may think the economy is decelerating and there are nothing but shortfalls ahead.

 

But what you should be thinking about are capital flows to the U.S. from countries that are self-destructing. Europe is doing nothing to ease the pain of the austerity mandates. There are no continental initiatives. The only real imperative that I see the governments subsidizing is renewable energy, yet the number of jobs that creates is astonishingly low, and the efficiency of it is questionable at best. The Japanese are betting that the existing less-than-wealthy depositors and investors will stay with them as they try to inflate into gross domestic product growth. But the wealthy? They would have to be nuts or incoherent to keep their money in the yen. That country is insular, but capital flows sure aren't.

 

We know that the wealthy in Latin America are taking no chances. It wasn't as if Hugo Chavez, the late Venezuelan president, was ever repudiated by these regimes when he was alive. There's no mass move toward capitalism. Finally, China? What can I say? The new president, Xi Jinping, has his work cut out for him, but wealthy Chinese are anxious to put their money here.

 

This is not a sobering picture for the U.S. Previously, the single biggest impediment keeping people on the sidelines had been the endless parlor game of guessing which month the Fed would pull the plug on the liquidity. As we know from when sequestration kicks in, next month's employment number should be worse than this past one, so the jeremiads from the "he has to let up on the liquidity" bunch will be silent.

 

That's a benign moment even if you are worried about earnings -- and that moment is not going away anytime soon.

 

 cramer

 

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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54Comments
Apr 8, 2013 12:23PM
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So the USA has the best house in a bad neighborhood.

Apr 8, 2013 9:14AM
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so the summary is the USA is the least-worst off country in the world, so therefore we'll see an influx of cash from the world into our markets.  and they'll buy real estate along with other stocks. 
Apr 8, 2013 3:15PM
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Someone asked where all the jobs went.  Well they went to Pakistan, India, China, Korea, Mexico, and every week our representatives sign even more trade agreements allowing access to our markets.  With the jobs went our tax base, and with our tax base went the financial  support for our social nets, social security, medicare, education, etc.  And our fellow citizens keep voting in the same  lame old representatives who have now all but completely sold our American dream down the river. So when we do stop spending an extra trillion or so each year in debt can anyone really imagine the devastation?  All under our own noses and with the willing acceptance of how many millions of dumb public educated morons that didn't have enough sense to understand when you give up your jobs you give up your autonomy, wealth and your childrens futures.  So we spend our days talking about who is sleeping with who, gun control, birth control, and arguing over a market that I would imagine is owned; to a large degree, by our US Guberment, who when the time comes can all but pull the plug and leave everyone maybe 75% poorer.  I believe this will be the final and total annilation of the wealth in this country. But remember no matter what just be confident everything will be okay.

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Yep the economy is worse now then in 2008. American wages discounting the top ten percent have fallen by 40 percent as $100,000 a year jobs have disappeared to be replaced by $14,000 a year jobs. The bottom half of the wage earners have an average of only $15,000 now.

 

THIS MEANS HALF OF AMERICANS ARE MAKING MINIMUM WAGE OR BELOW.

 

The labor force is 1/3 what it was in 2007 even though we have added about 1.5 million to the labor force each year since.

 

We are headed towards a complete collapse and the collapse will be greater by the fake monies Bernanke is printing up by the trillions each year to keep the super rich rich.

 

The money would have been better spent moving out of the WTO and cutting off all trade with the rest of the world expect raw materials and starting factories to make goods for ourselves and export.

 

Free trade only benefits those countries that are producing goods for sale and need raw materials.

 

Anyone in the US saying free trade is good for America right now does not understand the evil purpose of free trade which is to pump your country's goods into third world countries at a profit while modern manufacting techniques make your products cheaper than local goods. Also it means the third world countries can not put trade barriers up to keep your products out and can not put export tariffs on raw materials to increase their profits off their resources that leave their country never to return.

 

The stupid MBA's in America were never taught the correct way of doing business as it was not polictically correct to tell the truth about free trade. So they exported the manufacturing of jobs to other countries and our economy started on the down hill climb.

 

China is doing the same thing now and is seeing a dramatic decline it it's economy. They wonder where they are going to get the jobs to move the last half of their population out of poverty as they are moving all their jobs to Vietnam as Vietnam wages are now cheaper than China's.

 

Gee people China is still a command economy. If their leaders would come to their senses they would not export their jobs and they would build more and hire more poor people at living wages and boost their economy by 200 percent a year for a couple of years and get the poor people's wages up enough so they can afford the 100 million homes that now are empty as no one can afford to buy them.

 

The solution to the world's economic problems is simple. The rich are sucking all the money out of the economy and not putting anything back. Gee you can not price things in America as of everyone was making $120,000 a year when they are only making $14,000 and expect things to work.

 

Gee economists didn't they teach you guys simple math equations in school???

 

If you try to price all goods and services in your country at $16 trillion dollars and only pay people $4 trillion a year and half the people only make together $1 trillion a year.

 

It will not work. Let's do the math it cost $16 trillion for everyone to live in America for a year.

 

We pay people only $4 trillion a year. Hmm that means we are losing $10 trillion dollars a year.

 

That is how much money Bernanke has been pumping into the economy each year off balance sheet

 

AND IT STILL HAS NOT SOLVED THE REAL PROBLEM WHICH IS GOODS AND SERVICES TO LIVE ON COST MORE THAN PEOPLE ARE PAID.

 

IT'S A simple equation people THE COST OF GOODS AND SERVICES has to equal the WAGES PEOPLE ARE PAID in order for their to be economic stablity.

 

GOD FORBIDE THAT THEY WANT TO GROW THE ECONOMY then you would have to pay people more than the goods and serices cost. AND OF COURSE THE SUPER RICH WILL NEVER DO THAT.

Apr 8, 2013 10:44AM
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Liquidity is the answer is the same kind of myth that humans can fly or that trickledown will work.  It all seems wonderful until it fails.  Good ideas can fail just as can bad ideas when execution is the issue.  Gravity says humans don't fly well, and human nature says fear is a necessity. Humans fear jumping off tall buildings because they sense it will not end well. It is good to fear.  It prolongs all of our lives.  So swim upstream and complain that we are all human for having confidence issues Jim.  It will not matter.  People need fear and this stupid market will forever be comprised of we not so perfect humans.  Accept fear as a given and not try and talk people out of not recognizing its' importance.  If you do they will turn a deaf ear to what you say. And in this business one should fear those who practice the art of confidence building.
Apr 8, 2013 10:13AM
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The 2nd paragraph of this article completely nailed it.  Of course, probably without realizing it, Cramer basically just made a decent argument for trickle down economics.

At some point, hopefully we'll move on from this constant barrage of "lesser of two evils" rhetoric.  It permeates everything, from presidential elections to investing.  This whole false notion of only having 2 choices in every aspect of life is disturbing, defeating, depressing and downright exhausting.

Apr 8, 2013 12:30PM
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of course advisors have no impact on him.It was obvious from the beginning that a global economy would lead to one thing only ... The standard of living for ordinary Americans would decrease. Whether it be NAFTA, GATT, or any other trade treaty, the labor value of American workers would get hosed. And it was not limited to only high school graduates, but college educated engineers, computer scientists, doctors, et al would suffer as well.

This country is in trouble with high unemployment and no jobs on the horizon record food stamps, but it is ok to bail out European banks.

Apr 8, 2013 11:52AM
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Actually, I'm pretty much in agreement with his points one thru six.

Insufficiently stated however is that ultra-low interest rates induce people to assume more risk in an effort to maintain their desired cash flow.  I hope that turns out well but it seems that one or more bubbles may lie in our future. 

Apr 8, 2013 2:17PM
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The Market is bewildered by commentators like Cramer who are bewildered themselves ... why should we listen to them?  
Apr 8, 2013 3:38PM
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Much of our exporting jobs overseas had alot to do with our own workers.Many Unions made it difficult to compete sometimes making companies having to hire extra people to do what one person should have been able to do,everyone demanding more leisure time,sick leave,maturnity leave,coffee breaks,earlier retirement with health benefit  and pay figuring out to be $70.00 an hour for a high school educationor less ,maybe requiring tightning 8 bolts on a bumper.Then after they helped break the company they get a year and a half severance pay,government has to come in and bail  the company out.While that ex-employee who was paid a year and a half severance pay collects un-employment for a couple of years.We did it to ourselves.If we would have paid the exact same wages as the foreign car companies building cars in america we could have saved $1700.00 per car which could have been used to compete and win right here at home.

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I get so tired of that arcane "confidence" crap being the cause of business malaise or whatever.  What we need is DEMAND.  Give business customers who want their stuff and they will get it built and delivered.  "Confidence" isn't even a factor. 
Apr 8, 2013 2:57PM
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Yes, the US is the owner of the ball in this game. It prints the money that the world uses at will, and right now it´s feeling like printing a lot, courtesy of Helicopter Bernie.
Apr 8, 2013 10:54AM
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This comment is # 10,001....

Somewhat the reason for putting it on here, is having the 3-0's in it...One for each O in TOG (3)..

Comment 10,000 went to Charley Blaine's Article, because I have read and enjoyed his articles and synopsis of the Markets for a few years....And of course "some" of the comments an ensuing discussions...

I will miss some of the banter...Along with give and take.

 

Yeah, I would guess that we are more of a "safe haven" for Foreign Investors, for the time being..

We have actually had a Foreign "influx of money" for some time....With the strife in Europe, a slowdown in Chinese Companies and Japan with their "never ending recession."

It wasn't along ago they( guys like Cramer and others) were heavely touting investments in China, S.America(mostly Brazil) some in India and even Russia...The BRIC Countries..

Now seems many are exchanging, Rialdos, Rupees and Yuan and Yen for American Dollars. ??

(Spelling on currencies may not be correct) who cares ?

Talk all Ye may, about the Greenback...But history is yet to be written.

And as a side note....There has been a BIG INFLUX of Real Estate purchases in American properties since 2008...It seems hard to get those figures, but believe me the Foreign/Rich/Elite are gobbling up our Land...Including our own Rich....They "will get..""...And we will get poorer."

You all have a nice day, week and life....I will be around occassionally...Ciao.

***edited*** for, Maybe someday ABS will figure out where I live, I have gave him some "coveted, covering clues" and I will miss his diatribes, like him missing mine...?

 

Apr 8, 2013 1:26PM
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"The liquidity the Fed is pumping in will soon force the hands of our banks to lend,"

 

Why not get rid of the bias against SBA loans to white men. It just makes the pool of prospective borrowers larger. Why is it some racism is good?

Apr 8, 2013 11:51AM
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Is there any truth to so many leaving the job market -BUT getting themselves enrolled in disability? I heard 2 million people in the last 4 years.

Apr 8, 2013 11:33AM
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Re-TOG leaving us say it ain't so!!!!!!!!
Enjoy retirement, only another 34 years for me.
I've heard this argument lately that the USA on top of the crap pile (AKA the best economic situation of the rich countries that are all in a terrible situation).  In fact some have said that the debt level in China (personal and corporate debt not official government debt) actually exceeds that of the USA.  Seems like there are reasons to be talked out of every asset class.  I've gone to 40% bonds, 25% dividend stocks and 35% growth stocks.  I have cash as well in savings, don't consider that part of my "investment" money.  The bonds I own are foreign bonds of emerging markets, not China only democracies (mostly South and Central America, a little Asia).  Don't know if this is the correct portfolio but seems like the pros and cons are never ending these days.  
Apr 8, 2013 4:58PM
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I find it amazing..Obama gets the blame for everything..even though the republican house has blocked every item brought up even when it was their own ideas. I do not see anything in this article refering to the prices on gas as they hace gone up and down like a yoyo even when demand was down..of course..wall street makes the profits while the rest of this nation looses.  I guess the republicans can do no wrong even when they do nothing.  It is good I guess for companies to be making profits...as they should..but...the question should be..how are those profits being made..by actual sales or from the massive layoffs that many companies have had ?
Apr 8, 2013 1:50PM
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"Amber Alert" ...... one Ole Timer missing .......... goes by the handle RE TOG. If you see this person wondering around picking his azz or nose please contact.

 

jon wolfford 62 at yahoo dot com  (any of you remember this guy?)

Apr 8, 2013 3:33PM
Apr 8, 2013 11:57AM
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:Just dismiss these people out of hand; they are either short or ignorant."

Or in cramer's case both short and ignorant .......
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