Cramer: The Fed Has Nothing on Spain or China
U.S. investors need to stop hanging on the Fed chairman's every word and start paying attention to what's going on overseas, Jim Cramer said Thursday on CNBC's "Mad Money." After all, that's where the real action is in this market.
Although U.S. stocks lost some steam in the final hour of trade — with the Dow Jones rising 46 points, or 0.37 percent, at 12,460, the Nasdaq erasing 13 points to close at 2,831 and the S&P 500 edging down fractionally to 1,314 — the major averages rallied hard for most of the day and investors may be confused about what exactly incited such gains.
Sometimes all the mayhem in the U.S. markets can be explained by early morning action overseas. Early on Thursday morning, Spain saw a successful key 10-year bond auction that led European markets higher and inspired confidence in the perceived health of Spain's overall economy. "If you want to make sense of the U.S. market these days," he said, "you have to follow the nitty gritty travails of Spain as it tries to wend its way through the crisis."
Still, the auction did little to sway the S&P 500 futures, Cramer said. But that was soon remedied when, around 7 a.m. ET, China announced that it was cutting its benchmark lending rates by 25 basis points — the first time the country has cut rates in four years. Right away, U.S. futures exploded higher and from that moment, the U.S. market rally was set in stone.
But it's important to note that the rate cuts — and not Fed Chairman Ben Bernanke's Q&A — were responsible for the strength investors saw today, he said. Interest rates in the U.S. are already as low as they can go, and the Fed is running out of firepower while China still has plenty it can cut from its 6.51 percent interest rate. "As far as I’m concerned, I’d rather be in Beijing listening to their Fed Chief than in Washington listening to ours," he said. "They have room to make a difference, we have nothing."
Unlike the U.S., the Chinese have a whole arsenal of weapons at their disposal — including loan rate cuts, deposit cuts and easing loan restrictions, he said. Not to mention, their government isn't faced with the incorrigible gridlock the U.S. is facing every day on Capitol Hill. Cramer listed two key stocks — United Technologies and Cummins — that he said served as further proof of what really drove the markets today. United Tech is tied to China's infrastructure, heating and ventilation equipment, he said, while Cummins supplies truck engines to the nation.
In the end, "it's all China versus Europe, because here in the United States, we're simply out of ammo," he said.
The bottom line: Investors may still be held hostage by Europe, but at least there's finally a "countervailing force," Cramer said. China's rate cut proved to be a major improvement over where investors were last night — when the whole world seemed to be against them.
But even so, the fact remains that "Europeans need to deliver, and until they do, we're at the mercy of international forces beyond our control."
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