WASHINGTON. Every Trump tweet, every CNN fake news report, every lie, every rumor, every ham-fisted move the Deep State #Resistance makes – BANG! In the current environment, stocks are either off to the races or getting splattered on the concrete below. The cognoscenti often revile Mad Money’s Jim Cramer for his flamboyance. Yet when it comes to focusing on the current stock market hysteria, he nailed it in a recent CNBC piece.
Off and on, we’ve been fulminating about Wall Street’s Nervous Nellies since 2018 began. We still are. It’s good to have Cramer – a highly successful one-time hedge fund manager – backing you up. Decades of experience don’t make you infallible. But such experience still gives you an edge. That’s why even Cramer’s detractors should take a look at his common sense piece on today’s absurdly irrational markets. We excerpt his remarks, interspersing our own comments.
Cramer on point
“CNBC’s Jim Cramer is tired of watching the stock market swing from bullish to bearish on a dime.
“‘If I had to sum up this market in a word, I’d call it extremist. We rush from one extreme to the other, sometimes in the same day,’ the Mad Money host said as Alphabet’s successful earnings report drove stocks higher on Tuesday.
Extremist. Well, yeah. That’s about right. Every tweet, every CNN hit piece triggers a tsunami of buying and selling. Sometimes it involves individual stocks. Sometimes it involves entire sectors. And up to now at least, it’s all been completely irrational.
“Exhibit A? As the Nasdaq rallied on nothing other than Alphabet’s strength, the big industrial stocks fell after President Donald Trump praised his administration’s tariffs, which tend to hurt industrial conglomerates, Cramer said.
“But Cramer argued that the industrials’ decline also happened ‘in part because many traders made up their minds that things weren’t so hot before they even knew what the industrials were going to say.’
“That’s what frustrated him the most. One company’s strength shouldn’t lift the stocks of unrelated companies, like what happened with Alphabet, and one point of weakness shouldn’t drag down stocks of companies that could weather the storm, he said.”
Right again. Wednesday, the Dow Jones Industrials hovered once again at flatline. That disparate collection of Really Big Companies was down much of the day, because, tariffs. What is it that these clowns don’t know about negotiating for a better deal?
Trump’s international protectionist opponents have enjoyed living off hard-working Americans for over 70 years. They’ve long used their own tariffs to keep American products out, subsidizing their own substandard production methods in the process.
Meanwhile, the Chinese use Byzantine “trade deals” to steal America’s precious high-tech innovations and trade secrets. The idea is to become completely America-independent by 2025 in the realm of tech. By stealing that technology from an America that, under Barack Obama, chose to look the other way.
Cramer tries to add some rationality to the essentially irrational.
“‘You can blame the macro, you can blame the headlines, but don’t blame the companies,’ he told investors. ‘I know Wall Street has given up on China as a source of growth because of trade friction, but last night the PRC [People’s Republic of China] injected some serious stimulus into its economy, something that will indeed help the likes of [industrials] 3M [trading symbol: MMM] and United Technologies [UTX].’
“‘Better yet, the commodity markets — widely seen as a proxy for global growth — are “red-hot,” a signal that means investors should start buying shares of the industrials, Cramer said.'”
Is it real? Or is it Memorex?
There’s little evidence traders and investors are listening to rational advice. We ourselves expect something of a correction in August, just because this market is so weird. Nonetheless, Mr. Market continues to make idiots of us all, particularly those who constantly sell when panicked and wonder why they lose money. Cramer offers his thoughts on this matter.
“…[I]t’s not easy to navigate the market’s swings. How do you know when a move is justified or when it’s a product of impulsive trading? For Cramer, the answer’s fairly simple.
“‘Individual stocks still do matter,’ he said. ‘It’s absolutely true that Alphabet [GOOGL, the parent company of all things Google] had an amazing quarter, but that doesn’t mean you should buy all things tech, even though that’s exactly what happened at the opening.’”
Yep. But it’s been happening all day on Thursday. Even the equal weight tech ETFs like RYT (which we own in our portfolios) are heading for the stratosphere at the moment. (But see our final comments below.)
“Meanwhile, when sellers decide that one earnings report is enough to drag down an entire sector, like they did with Scotch tape maker 3M’s quarter, Cramer suggests doing your homework before joining the crowd.”
Again, check out our final comments on Facebook at the conclusion of this piece.
“‘The moral of this story is that the extremes have to be avoided. Don’t buy up, don’t chase when there’s nothing but rampant pin action, like we saw in the case [of] Alphabet. Don’t sell down when there’s nothing wrong,’ Cramer said. ‘In fact, here’s a radical idea for everyone who dumped the industrials this morning: maybe try to figure out what’s going on before you take action.’”
The panic room
This is all good advice. But will anyone heed it? Tough to say, when the MSM, and the financial media (including CNBC), are happy to panic investors every time President Trump sneezes. It takes nerves of steel to hold on to a perfectly good stock that gets squashed one day for no particular reason other than media-induced panic attacks. After all, it’s our money.
As the U.S. stock markets streak toward Wednesday’s closing bell, today’s action proves once again that Mr. Market himself seems to have lost his mind. Stocks – particularly big stocks – wallowed in the Slough of Despond Wednesday morning, terrified by yet another Trump tweet on tariffs. Yet roughly an hour ago, at around 2 p.m. ET, Mr. Market fixated on another Trump pronouncement.
“During a meeting with European Commission President Jean-Claude Juncker, President Donald Trump said he wanted ‘to work something out on a fair trade deal with Europe.’”
Trump apparently wangled some yet unknown concessions out of Juncker. So what happened when this news hit the wires?
“Stocks recovered all of their earlier losses on Wednesday as tech shares rallied and hopes for a U.S.-Europe trade deal increased.”
“The Dow Jones Industrial Average traded 6 points higher after falling more than 100 points. The Nasdaq Composite jumped 0.6 percent as Google-parent Alphabet, Facebook and Amazon all traded higher. The S&P 500 also gained 0.3 percent as tech rose 1 percent.”
As we wrap this column, we see that the DJIA closed up 172.16 points (0.68 percent). The S&P 500 steamed ahead 25.76 points (nearly 1 percent). And that almost-always reliable, tech-heavy NASDAQ blasted off to the stratosphere, garnering a whopping gain of 91.47 points (1.17 percent).
Once again, like Wile E. Coyote in our illustration above, Mr. Market went bungee-jumping on the headlines as they morphed from grim to ecstatic without a moment’s notice.
But then there’s that Facebook issue
Problem is, after the closing bell, Facebook (FB) weighed in with Q2 earnings that were off analyst estimates by two lousy cents. Watch Facebook get clobbered at Thursday’s opening bell. Where it – and tech in general – will go after that is anybody’s guess.
We’ll see you tomorrow.
Headline image: Wile E. Coyote swinging on a bungee cord, just like the stock market. (Screen grab of Warner Bros. cartoon, posted on YouTube. Original material copyright Warner Brothers. Fair use to illustrate key point.)