When 'Bad News Is Good News'
Cramer on Monday noted the market continues to make a "pretty spectacular" run despite downbeat about housing and jobs news. After all, 13 percent of all U.S. homes are vacant and pending home sales only rose by 2 percent. Meanwhile, the latest employment data is set to be released on Friday and it doesn't look promising.
"The news on both of these subjects has a sort of persistently pessimistic tone, which makes people feel like the whole move in the averages is a false one. As though this entire rally that's taken us so close to levels we haven't seen in almost three years, is bogus, based entirely on short squeezes and new money coming into the market, as opposed to the fundamentals," Cramer said.
While economic news has largely been bad, Cramer said the response from the Federal Reserve has been good. So long as the housing and job markets are poor, Fed Chairman Ben Bernanke will continue to pour money into the market for fear of letting the economy slip into a depression.
"We are and have been in the longest 'bad news is good news' moment that I have ever come across in my 31 years of trading," Cramer said. "That means the bad news keeps producing the low interest rates that make stocks, particularly stocks with decent dividend protection, more attractive than their fixed income alternatives."
Being as housing and employment directly impacts the consumer, these "negatives as positives" are difficult for investors to compute. To Cramer, the idea that a lousy housing and labor market can be a good thing for stocks is "totally counterintuitive" because the bad news reverberates in many ways. From jobless claims to housing starts, there are objective benchmarks that make the weakness demonstrably stark. Meanwhile, there is a belief that Bernanke's actions could create inflation, even as there has been deflation in wages and housing prices. This poor U.S. economic data hurts a variety of companies, especially the banks.
Other companies are saved by globalization, though. Caterpillar's stock, for example, has recently reached highs. Being as CAT's earnings have previously been tied to U.S. construction, Cramer thinks it's outrageous this stock has been moving higher. It has been helped by construction projects in places like Brazil and China, though.
Another counterintuitive run, Cramer said, has been in the rails. The railroad is now primarily an exporter of domestic raw goods, shipping products that send the materials overseas. So even though housing and commercial construction aren't doing well, the rail business can be robust. In fact, he said tons of prominent industrial stocks are no different. Take Emerson , Honeywell , 3M , United Technologies , Eaton and Boeing for example.
"They are barely American companies," Cramer said. "They can't be expected to confirm to American housing and employment data that are literally a push for them, things that keep rates down so their yields are competitive with bonds, even as their domestic businesses are depressed."
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