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The Importance of Overseas Economies

What matters to the US economy is not the same as what matters to the stock market, Cramer said Tuesday. There’s a whole world out there that can help to push share prices higher.

That’s because what drives stocks is corporate profits. And while the housing sector, slowing PC sales or even consumer confidence may be dragging down the US, companies seem to be making plenty of money overseas. Investors must keep this in mind when they hear things like, “We have bad inflation." Or, "We have bad deflation." That “we” refers only to the US economy and not the "we" of the market.

Consider a recent conference call for UPS . On this call, "we" referred to Poland, China and Central and Eastern Europe, but not the US. That's because, according to CEO Scott Davis, "Only 1% of US small and medium businesses export products, and to most only one country." And “96% of consumers live outside the US,” he added.

If investors were to broaden the definition of "we" to include the rest of the world, then perhaps they could understand how the market might push higher in the face of economic difficulties here at home: because that definition doesn't otherwise include international economies that are driving big-cap stocks. Large companies have decided to forego doing business in the US's shrinking economy, Cramer said, and focus on the growth areas around the globe.

"On down days we focus on how pathetic the United States is, in part because small business and employment are supposed to be the drivers of our economy, and they aren't driving," Cramer explained. "On days that are up, we fail to take into account what really does the driving, exports to the stronger countries, international business, something not constrained by the US consumer or the [Federal Reserve’s] quantitative easing."

Expand your view to include global marketplaces, Cramer said, and you too will be better able to explain fluctuations in the US stock market.

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