Jim Cramer can't help but relate oil to the famed childhood story of "Goldilocks and The Three Bears," with poor little Goldilocks, who likes cheaper oil, facing off with the three big, bad bears who need oil to go higher. Wait, isn't Goldilocks the hero in that story?
On Tuesday big bad papa bear mauled little Goldilocks, sending the market down once again on fears related to low energy costs, Russian economic troubles and the Federal Reserve's policy decisions.
Cramer went through the story of each bear Goldilocks must ultimately face before stocks can go higher.
The first bear is Brazil, with the gigantic national oil company Petrobras. The company is on the verge of collapse and has announced it will cut its exploration and production budget in order to save cash. Since it is 60 percent owned by the Brazilian government. Cramer doubts that they will let it roll over. Still, it's making Goldilocks nervous.
Next, are the smaller oil companies in the U.S. that have a stake in places like Marcellus, Utika, Bakken, Permian, Eagle Ford, Niobrara and Mississippi shales. These companies need oil to go back up, especially if they purchased land in the past two years. They overpaid for it, and the cash flow may run out if they don't pump enough oil to pay the bills.
"Mama bear is going to do some serious repossessing as the cash flow runs out, the drilling budgets get slashed, and the credit gets turned off. The problem here is that these things take time to go bad," Cramer said.
Then, there is the biggest and meanest bear of them all: Russia. It's falling apart, to say the least. And to boot, its biggest asset is oil and gas. The Russian central banks hiked up rates from 10.5 percent to 17 percent to stop the run on the country's banks. Cramer thinks it's too soon to know if the rate hike will fail.
The good news is that many companies in the U.S. aren't in business with countries like Russia or Brazil. That means Goldilocks can still score a win here and there, such as when CVS announced fantastic numbers and the stock soared on Tuesday.
Additionally, many countries want to cheapen their currency to get the U.S. to buy their goods. That means the rich people in those countries start to buy U.S. treasury notes, since the bonds are a safe place to deposit money. That reduces U.S. interest rates, which gives the American people an opportunity to refinance and buy a house. All good things for Goldilocks.
"Oil bounced back hard today, which is fine after it's been cut in half, although it couldn't really hold its own. Still, it did bounce, and if there were no bounce it would mean that things are pretty catastrophic."
Finally, a moment to breathe.
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It's not just Cramer who is in favor of low oil prices, either. Dave Cote from Honeywell explained to Cramer on Monday that all countries will get a boost from lower energy costs. Klaus Kleinfeld, the CEO of Alcoa echoed the same sentiment. And while Boeing's Jim McNerney and 3M's Inge Thulin didn't say the same thing, Cramer suspects otherwise considering that they just boosted their dividends.
If all four of these smart people are positive on the long term, then investors should listen. You would be a fool to bet against them.
So while little Goldilocks does have her work cut out for her fighting the bears, there could be a boom on the other side of it. Low gasoline prices fueled by a strong economy could be unstoppable once they get Russia, Brazil and oil woes out of the way. Then it will be unlimited porridge for all.
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