One of the most e-mailed articles from The Wall Street Journal this past weekend was titled, “Is A Crash Coming? Ten Reasons To Be Cautious.” This hyper-negativity is what keeps investors out of the market, and Cramer considers it his job to refute it.
So for Tuesday’s Mad Money, he dismantled the story piece by piece. Here’s how it breaks down:
1. Citing data compiled by Yale University, the article claimed the market, trading at 20 times cyclically adjusted earnings, was expense. But it’s the future that matters, Cramer said, not the past. And a conservative estimate for next year’s earnings put the S&P 500 trading at just a 12 price-to-earnings multiple. Plus, and this is important because valuation can't exist in a vacuum, stocks relative to bonds are incredibly cheap right now. “The cheapest I can ever remember,” Cramer said.
2. Apparently the Federal Reserve is nervous, the Journal stated. But that’s a good thing. Because when the central bank is “concerned about growth,” a phrase Cramer prefers to nervous, it means Chairman Ben Bernanke is on the market’s side. He will do what’s necessary to help the economy. The only time investors should worry about the Fed is when Bernanke is against the market, and he’s not right now.
3. Another claim in the story was that too many people are bullish. Interesting, because we seem to be at record sentiment lows. So far this year $33 billion has been pulled from stock funds, and the bull-bear ratio, too, is near all-time lows. Cramer said the outlook hasn’t been more dire than now, other than right before the generation bottom of March 2009. You know, when the Dow was 4,000 points down from here and ready to rally?
4. Fear deflation, the Journal said, as consumer prices and real wages fall. The true measure of deflation, though, as Cramer sees it, is the price action in Treasury Inflation-Protected Securities, or TIPS. Given their 1.39% yield, people seem more worried about inflation. Also, Tuesday saw a Producer Price Index that was up 0.2% in July, indicating inflation. And again, Bernanke, the Great Depression scholar, knows a bit about deflation, and he isn’t going to let that happen.
5. Everyone from households to corporations to governments at all levels is heavily into debt. So says the Journal. Cramer, on the other hand, said corporate balance sheets are “brimming with cash,” and individuals, too, are digging themselves out of their credit troubles. Witness the decline in credit-card delinquencies we saw on Monday.
6. The US employment situation is even worse than you think. Beyond that 9.5% unemployment rate is a much more sobering statistic: Only 61% of the adult population has any kind of job. As bad as the Journal made that sound, though, Cramer pointed out that the market is well aware of the current jobs environment in this country. It’s already priced in. Sure, it keeps stocks from rallying too high, but it won’t cause any additional losses. That said, if we do finally get a strong month’s worth of strong employment data, Cramer thinks the market could jump “a thousand Dow points instantly.”
7. The article also tried to pick about housing, saying that foreclosures are up while pricing is down. Too bad the Journal completely overlooked the pricing bottom that happened last June. Or the fact that in the second quarter 100 out of 155 metropolitan statistical areas saw higher median single-family homes than last year, with 14 of them up double digits. Also, the low housing-starts number announced today is a positive, Cramer said. It will help to create the housing shortage he sees coming by December 2012.
8. Cramer also countered the argument that, with Labor Day coming, the market is approaching the historically weak months of September and October. Turns out that three of the last four Septembers have been higher, in fact. And this past spring was anything but good, and that’s a historically strong season. So Cramer just doesn’t think this is a useful way to look at the market.
9. The Journal took the opposite tack on Washington gridlock than Cramer does. While the paper said strong leadership is a must, Cramer thinks the Street prefers a disabled Congress. And given voters’ seeming frustrations, it looks like a change is coming. That could be good for the market because the S&P 500 has run 15% on average on years when we had a Democratic president and a Republican majority in the legislature.
10. Finally, according to the piece, “All sorts of indicators are flashing amber.” Of course, there are plenty of indicators that aren’t flashing amber, too. Besides, investors trade on earnings, Cramer said, “and the earnings have been more bullish than we expected.” Three-quarters the S&P companies that have reported since July 12 topped their estimates. And even those that missed, like Amazon.com , are up since their quarters.
Cramer’s bottom line: Don’t be scared off by these misleading arguments.
“The simple reality is,” he said, “that you don't get a crash with low interest rates, good profits and robust worldwide economies.”
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