Sometimes you hope others pivot when you have new information that should change policymakers’ minds. We got our non-farm payroll numbers and they were predictably strong, but because of how poorly tabulated numbers are we may be getting a false reading. We’ve been waiting for the other shoe to drop, and it’s truly beginning to do so. We know this because of a story Friday from Bloomberg about how U.S. bank lending contracted by the most on record in the last two weeks of March. Commercial lending fell by nearly $105 billion in the last two weeks of March, with a huge chunk from small banks, which represented local loans to local businesses — the businesses that would be most impacted by tighter credit. That includes commercial bank deposits by $64 billion, north of the $250,000 insurance threshold, or simply money into Treasurys and money funds. With money flying all over the place, it’s difficult for a bank or its examiners to determine exactly how much they can lend. No bank that saw an exit of any sizable amount could be expected to make new loans. Now, we’re not in the lending business. But we are in the impact-on-the-economy business and you have to wonder whether some of the more dogmatic Federal Reserve members are aware of this mid-month sea change. But one thing for certain is if the Fed doesn’t change its mind on the rate of interest rate hikes, we know that things could go very awry. Now, we managed to raise our cash position ahead of the next earnings season to more than 8%, and as long as the market is overbought we’ll look for opportunities to trim — but I think that taking that cash position much higher could be a mistake. That’s because we’re at an odd crossroads. If the Fed doesn’t pivot it would not mean that the entire stock market would go down. The stock market is definitely not a referendum on small business growth. I remain convinced that federal largesse will fall into the lap of Club holding Caterpillar (CAT), and it’s wrong to ignore what will be a gusher into American-made earth-moving equipment and steel. The stocks that will be far less affected will be the large tech companies, many of which are profoundly impacted by the potential for an artificial intelligence revolution that plays right into their hands. They could end up being like the consultants were to digitization. Is it really possible to have two markets at this moment when the Fed may be missing the mark? I think so and here’s why. If we get a Fed that’s misdirected and geared for a tightening we are going to get a pretty severe reaction, but it will bring money from the rest of the market to tech. And if we get a pivot, where the Fed decides that rates are too high, money will be blown back into the S & P 500. Few can be as nimble as you may need to be to deal with the next two weeks, which is about the time I think it will take for many to realize that the imputed 100-basis-point interest rate hike is upon us. So, stay tuned closely as we watch the Fed’s resolve against inflation to morph into the central bank’s determination that the beloved small-and-medium-sized businesses must be saved. It’s an intriguing set-up, one that could produce a quick drop — and then a roar if the Fed’s attuned to its data, not just its dogma. (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.
WASHINGTON, MD – MARCH 07: Federal Reserve Board Chair Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee.
Kent Nishimura | Los Angeles Times | Getty Images
Sometimes you hope others pivot when you have new information that should change policymakers’ minds. We got our non-farm payroll numbers and they were predictably strong, but because of how poorly tabulated numbers are we may be getting a false reading. We’ve been waiting for the other shoe to drop, and it’s truly beginning to do so.