Here are the issues with the market, as I see them. On the one hand, you have the most pronounced seasonable pattern imaginable, which historically suggests that a horrid September like we just had results in a terrific October. But the sentiment, as measured by various polls, rivals the most negative I can ever recall. People loathe the market, are sick of megacaps, and think that because stocks are up so much this year they have to fall — hence the cake of pessimism that’s cut so easily by a pen knife. At the same time, there is the usual cohort of billionaires telling us what to do, which is mainly to sell. The billionaire class told us that an inverted bond yield meant a 100% chance of a recession. Now that we are almost back to normal via de-inversion, what does that say to the billionaire class? Simple — that we are about to have a recession. I am out there too often and am too accountable — in addition to not being a billionaire — to play a heads I win, tails you lose game of superiority. Of course, the billionaires have their reasons. The race to a 6% yield on the 20-year Treasury is unprecedented in speed, but not in rate. Inflation, we are told by the super rich, is now ingrained. I want to say to them “ain’t you people ever gone to Costco?” But they would just dismiss me for thinking positively. Sometimes, in my wildest dreams, I wish Federal Reserve Chair Jerome Powell would skip a couple of quarters, take interest rates to 6% and dare people to buy homes and boats with financing charges so obscene that it’s cash or nothing. The latter would finally cause all the big-ticket producers of anything to stop making things until they had to come back to the market, as e they would be losing too much money. The stock-market pessimists have oil, as there seems to be no price that Saudi Arabia — the de-facto head of the Organization of Petroleum Exporting Countries — will put a floor under. Brent crude, the global oil benchmark, is trading at roughly $92 a barrel. And the pessimists have the nagging fear of shortfalls for every company, even as firms like Club holding Costco Wholesale (COST) and Nike (NKE) reported positive quarterly results last week. But those can be conveniently overlooked because the billionaire crowd doesn’t bother to engage with individual companies, as that would require them to stop going to galas and games of teams they own and, instead, read the transcripts of some earnings conference calls. But at a certain point, we have to admit that our companies won’t roll over and play dead because of this tyranny of rates. They will do things that represent ingenuity and strength of balance sheet, and do something to make things better. Maybe it’s an additive merger. Maybe it’s a break up — Club holding Honeywell (HON), potentially — or selling. Maybe these companies just say that rates aren’t hurting them, but they are adjusting nonetheless. That kind of assurance is, again, lost on the critics. The stock sellers show no fortitude. They want to hide in something that gives them 125-basis points more of return. As I like to say, who needs Club name Nvidia (NVDA) when you can have a Treasury bond —Yippee! The sellers show no patience. The sellers believe inflation will never stop and the Fed and Treasury issuances will destroy the supply-demand relationship by their continual selling. And all of this, of course, means investors want to pay less for stocks, all sorts of stocks. I think the sellers have a seductive set of points. The points refer to the relationship between bonds and stocks. I get that. However, go back to the inversion theory. Didn’t bonds tell us to abandon stocks? I asked then what if the bonds were wrong? Wouldn’t we go higher? We did. Now I ask, again, what if bonds are wrong? What if all of this “not since 2006” nonsense was just that. We have an economy that’s as strong as 2006, if not stronger, and more solid because it isn’t debt fueled. Yes, we have had a yield move of incredibly velocity, but we do not have a collapse in business. We didn’t then and we don’t now. That leaves me with one last thought. If the bears have the most seductive arguments, what happens if everyone believes them? Just like the inversion theory. It’s so easy to be bearish — too easy. But I don’t want to fall prey to the dominant theme. Let’s see what October brings before we write off what the optimists think and side with the pessimists, lest they be as wrong in their interpretation of bonds as they were last time. (See here for a full list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
People with umbrellas pass by bull and bear outside Frankfurt’s stock exchange during heavy rain in Frankfurt, Germany.
Kai Pfaffenbach | Reuters
Here are the issues with the market, as I see them. On the one hand, you have the most pronounced seasonable pattern imaginable, which historically suggests that a horrid September like we just had results in a terrific October.
