After weeks of gains, Cramer sees today’s pullback in the market as a perfect time to examine what could go wrong… it’s time for a reality check to determine where the market is headed.
Take it from Cramer, who employed similar methodology while running a half-billion dollar hedge fund. Whether you’re managing your 401k, saving for your kids or managing big money, you need to keep it all in perspective to be a good money manager. You have to keep questioning your strategy, Cramer says, even if you’ve been right in the past, and find holes in your trading thesis so you can effectively close them.
Cramer sees five potential hazards and worries in the market that demand your close attention. Here they are:
First: Employment. Cramer says that for the market to keep powering to new highs, the economy must stay on a roll when it comes to unemployment. We need to continue seeing claims go down month after month, and even week after week to sustain bullishness in the market. If there’s a spike in weekly unemployment claims back over 600,000, bullish strategies may have to be reevaluated.
Second: President Obama. Recently, he’s been doing a good job regarding Wall Street without demonizing it, for the most part. Having Obama on the side of investors is of utmost importance, says Cramer, pointing out how the market bottomed at about the same time that Obama recognized the importance of stocks. With so much invested in 401Ks and other investment funds, Cramer thinks Obama has finally realized that even relatively large tax cuts pale in comparison to losses already sustained. Obama understands that he has the power to strongly influence the markets and he has to wield this power carefully.
Third: Inflation. It’s a ever-present problem when the government is printing as much money as it has been, Cramer says. But he’s inspired by a recent piece by Ron Insana on TheStreet.com, titled “The Flationistas are Flat-Out Wrong,” which suggests that inflation is a non-issue. With cheaper housing prices, plummeting auto sales, a collapsing financial system, and still rising unemployment, it’s suggested that there are signs of deflation, not inflation.
Fourth: The banks. According to the media, Stress tests are a joke and the banks are more insolvent than ever, says Cramer, but their opinions and analysis doesn’t matter. Despite the buzz in the media, money talks in the market and the mutual funds are letting their cash speak by buying into all of the big bank stock deals. Cramer thinks BB&T deal looks like a good one, and with the right pricing, the Capital One and US Bancorp deals could also be good opportunities, playing out like last week’s Wells Fargo deal that shot the stock up six points. It’s a strategy Cramer has been pushing on Mad Money for some time. Cramer gives props to Treasury Secretary Tim Geithner, whose plan allowed banks to raise capital and may get us out of the financial mess we’re currently in.
Fifth: Gasoline prices. This is one that particularly irks Cramer, and it's one that's more out of our control. He points out that the recovery in restaurants and then retail occurred because gasoline prices came down last year, encouraging customers to go out and spend all the money they weren’t spending at the pump. Cramer sees high oil prices as the ultimate bull killer: “Nothing worse for this market than if the consumer is strangled and left for dead by high gas prices,” he says.
Cramer wants you to keep these worries in perspective, and let them help you gain perspective on your investing strategy. For now, Cramer’s bottom line is that the five fears don’t yet merit selling. “The bull is still alive,” he says, “and on these pullbacks, you should still be a buyer.”
Cramer's charitable trust owns Wells Fargo
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