Why the Spain Bailout Rally Didn’t Last
News that European policymakers agreed on Saturday to lend Spain’s banks up to $125 billion to shore up the region’s ailing financial sector helped send stocks higher at the open Monday, but the initial euphoria over the deal wore off and fears over a global economic slowdown returned, prompting stocks across the board to closed down more than 1 percent.
“When you get news that you expect, it isn’t really news. That’s how the market chose to interpret the news this weekend,” said Jim Cramer on CNBC’s “Mad Money.” “Welcome to the world of discounting, meaning that when someone anticipates a positive move and buys stocks ahead of it, you’re going to get selling, not buying, unless the move is a total shocker.”
In turn, Cramer recommends that investors consider dividend-paying stocks with “domestic security,” meaning the underlying company has no exposure to Europe. He listed Bristol-Myers , AT&T , Verizon , Southern Co and Altria as examples.
Eventually, Cramer thinks investors will be able to invest in riskier assets, but several things need to happen first, including, 1) Actual capital, not loans, needs to be brought into Europe, so we know the region is on a “firmer” footing, 2) A spike in gold prices will signal the crisis is over because whatever cash is put in is borrowed against by the European Central Bank, which people in Europe regard as inflationary. While it might not matter in the U.S., Cramer said people in more conservative countries, like Germany, will see it as “hyperinflationary” and will buy gold en masse, 3) Bond yields for troubled countries like Italy and Spain will go down, while the yields of stronger countries, like Germany, will go up, 4) Cramer expects to see a spike in the price of copper, which he considers a great barometer on global growth.
So what’s the bottom line? Cramer said he’s sticking with “domestic security” stocks until every box on his checklist for Europe is marked off.
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