Two headwinds have ended Cramer's 18 months of "bullishness" and left him with a more "grim" view of the market, he said Monday.
Why is he becoming less bullish on the markets?
Well, an investor's worldview decides how much he or she is willing to pay for earnings, the "Mad Money" host explained. One with a negative worldview, for example, will be less willing to pay up for a company's projected earnings, he said. Those who think the economy is deteriorating will pay less for stocks.
"After 18 months of incredible bullishness, my worldview has just become a lot more grim," Cramer said, adding that he thinks individual stocks can still go higher, though.
There have been numerous takeover bids in the past few days, which has helped nullify some of his negative worldview. Stocks can also get a boost when analysts issue an upgrade, although Cramer doesn't think they're worth banking on. Companies can help their stocks to go higher by boosting dividends, as McCormick and Freeport-McMoRan have recently. Other companies can help their stocks by spinning off lagging businesses. In some cases, a company's stock can be helped by purchasing a lagging business, as Diamond Foods had with its purchase of Procter & Gamble's Pringles.
The market could either be exuberant or muted to good news, Cramer said. It all depends upon the "big picture," which sets the overall tone for the market. For the last 18 months, Cramer thought the big picture was "terrific." During that time, the market was being helped by the monetary policies of Federal Reserve chairman Ben Bernanke, he said. The market has now run into two significant headwinds, though: higher oil prices and the debt ceiling.
"Higher oil means higher costs for businesses in so many ways. It means a slowdown in new autos, as people associate not buying a new car, or switching to mass transit, with saving money and offsetting the increased cost of gasoline," Cramer said. "It means higher gas, which means a tax on the consumer, making it too difficult for people to afford Lobsterfest at Darden's Red Lobster."
A decline in oil prices on Monday helped consumers avoid seeing the price for a gallon of gas skyrocket to $4. It is critical for the health of the economy that gas not go that high, Cramer said. He wants to see oil prices fall below $100 a barrel.
Meanwhile, Cramer is concerned about the debt ceiling, too. The U.S. government borrows trillions of dollars to finance spending on things like Social Security and the military, Cramer explained. If other countries try the U.S. to keep its fiscal house in order, though, they could demand the U.S. raise interest rates. Businesses borrow money every day and at a higher rate than the government. A rate hike would not only affect businesses, but it would make selling the old housing inventory more difficult. Homebuilding would be further delayed and companies would be less likely to start aggressively hiring again.
To Cramer, if oil continues to climb and the debt ceiling isn't raised, it won't matter what action Bernanke takes. These two outside forces will make investors pay less for stocks, or sell them en masse. For that reason, Cramer suggests investors sell into strength.
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