U.S. stocks are handcuffed to Europe, Cramer said Friday, but that’s not the only problem. The “Mad Money” host went through the six debilitating aspects of this market that make stocks unpalatable to most investors.
First, Cramer complained the machines are in charge right now. Some are using sophisticated arbitrage between exchange-traded funds and the S&P 500 index , while others are simply keying off levels that are triggered by the futures. Even though the double- and triple-levered ETFs seem to have little volume, Cramer thinks they create a huge ripple affect and distort the close for the worse.
Second, Cramer said yield is the only thing preventing the averages from being annihilated. Yet many strategists don’t understand the value of a big dividend, Cramer said, otherwise high-yielding stocks, like Kimberly-Clarke , wouldn’t get a downgrade.
Third, market valuation is meaningless right now, Cramer said. Cheap stocks just get cheaper. Freeport-McMoRan’s stock , for example, continues to fall. Its trajectory is saying that copper will fall to $2, where the company barely breaks even. In 2008, the company cut its dividend and bottomed in the teens. But Freeport is a much stronger company today with a better balance sheet and healthier assets, Cramer said. All of this means nothing, though, because valuation isn’t, well, valued.
Fourth, broken stocks don’t just break. They accelerate to the downside, Cramer said.
Fifth, U.S. banks must adhere to capitalization rules implied by Basel following the serious stress test rules set up by Treasury Secretary Timothy Geithner. European banks, on the other hand, went through a “phony” stress test. Most of the European banks should really have closed or merged if they had played by the U.S.’s rules, Cramer said. It’s just another reason to sell U.S. bank stocks while European banks continue to “stink up the joint.’
Finally, the U.S. can’t recover quickly because we have European linkage. U.S. companies largely haven’t missed numbers because of weakness in Europe, but that doesn’t seem to matter, Cramer said. Instead, we continue to take a beating as the Europeans continue to export inflation.
It would be great if the U.S. could break its linkage to Europe, but Cramer said that’s not going to happen. Investors should just accept it.
So to play this market, Cramer recommends high-yielding utilities, real estate investment trusts and master limited partnerships. These groups don’t trade with Europe, he noted, so that’s a safe play for now.
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