How to Use This ‘Stupid’ Market to Your Advantage
“The market’s stupid. It’s moronic. It’s imbecilic. Dumb as a bag of hammers and slow as molasses, which, alas, is your edge because anything that idiotic can be gamed by you at home,” said Jim Cramer on CNBC’s “Mad Money.”
So what’s Cramer talking about? Well, Cramer noted that news from truck engine maker Cumminsdrove the whole market lower on Monday thanks to a mid-day release entitled “Cummins Increases Dividend by 25 percent; Updates 2012 Revenue Outlook.”
At first glance, it seemed like great news. After all, Cummins had paid 40 cents a share, but it will now pay 50 cents a share. And while one might guess the stock would have rallied on the dividend boost, it actually plummeted $8.53 to finish at $86.91 a share.
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The problem, Cramer said, is that Cummins’ outlook was “seriously disappointing.” Cummins has “out-engineered everyone in the game,” Cramer said, so it’s presumed that “the world must be slowing rather dramatically" for this “best of breed” name to report flat revenues instead of the 10 percent increase it expected. It lowered its full-year revenue outlook for 2012 and now expects 2012 revenues to be in line with 2011 compared to its previous guidance of an increase of 10 percent.
As it turned out, CEO Tom Linebarger indicated order trends have indeed been slowing in the United States, as well as Brazil, China and India. In turn, Cramer said the news took down the whole market.
“This is as pure a sign of a global slowdown as they come,” Cramer said. “So today’s decline was all on Cummins, especially since Europe was up nicely last night.”
But none of this should have been shocking to anybody, Cramer said. There were plenty of hints in aluminum maker Alcoa’s earnings conference call, which was held after Monday’s close. CEO Klaus Kleinfeld specifically said that truck manufacturers had dramatically lowered their aluminum orders in every region last quarter, Cramer said. Kleinfeld also said things are going to get worse before it gets better.
“He basically told you, ‘sell Cummins and sell Cummins now,’” Cramer said.
Investors who listened to that conference call or read the transcript had the opportunity to sell Cummins, Cramer said. Cummins opened up more than $1 and continued to rally to $97.36 a share.
“If you listened to Alcoa, you knew to get out of Cummins and maybe a host of other industrials and had a chance to jump into what’s safe,” Cramer said. “But if you didn’t listen, if you didn’t do your homework as I suggest every night, then you’re just as slow and just as idiotic as the market itself.”
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