Game Plan: Market Not As Bad As You Think?
Believe it or not, Cramer’s found a reason for, well, not cheer so much as a reason to not be so gloomy despite everything going on the market these days.
He’s found some parallels between the crash of 1929-32 and now, but with one very important difference.
The great stock slide of late 1929 lasted through mid-1932, with only a few upticks in the market at the very beginning interrupting the decline. Here’s an example: U.S. Steel plummeted to $22 from $262 over the course of almost three years. But if you look at U.S. Steel today, you’ll see a very similar drop – to $30 from $196. The difference? It’s only taken X five months to come close to its bottom during the worst market in U.S. history.
Cramer’s point is that we might have already seen the worst crashes that this recent sell-off has to offer, at least in many, many stocks. The de-leveraging process, the unwinding and selling of so many stocks has accelerated a process that took years before into just months now. If we’re not at the bottom yet, Cramer thinks we could be very close to it. So the velocity with which we’ve fallen recently could actually be the silver lining in that black cloud overhead.
Of course, this is just the market we’re talking about here. A year after U.S. Steel hit $22 in 1932, the economy was so bad that 25% of the nation was unemployed. And over that three-year decline in stocks, the gross domestic product was cut by two-thirds. So the economy could be lagging the markets a bit here, leaving us vulnerable to more bad news, but Cramer doubts things will be as bad for us now. We’re at 7% unemployment, and the safeguards in place should stop that number from coming anywhere near 25%. As for GDP, we’re expecting flat growth for this quarter, which, again, is much less debilitating than what we saw 76 years ago.
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Cramer thinks that U.S. Steel at $30 is far more undervalued than it was at $22 during the Great Crash. The decline in the stock over the past five months easily outpaced the decline in business, and X is a much stronger company now. If the stock goes as low as $22 again, Cramer recommended buying some.
Feel better? OK, maybe not completely better. But the fact that we’ve seen similar declines to the Great Depression in a much shorter time frame, and that our economy should hold up much better this time around, might be reason enough for, well, some solace, Cramer said, if not cheer.
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