Jim Cramer recently had an investor ask him what biotechs, old pharmaceuticals and new pharma have to do with what is happening with China. And while the question may seem quite simple, it is actually incredibly complicated to answer.
"On the one hand, biotech and pharma should have nothing to do with China. But on the other hand, they are deeply intertwined. And that intersection is both treacherous and full of opportunity," the "Mad Money" host said. (Tweet This)
Cramer noted that the fortunes in biotech and big pharma have very little to do with the fortunes in China. Something is clearly very rotten in China, but it isn't so bad that it could actually hurt sales of a big company like Pfizer or Celgene. People will get sick, and they will still take medicine.
So, on the surface it may appear that any weakness in China shouldn't affect these stocks. But that is not correct, and Cramer is worried that many people are making that assumption right now as they put money to work in these stocks.
The first complication has to do with the mechanics of money management. If China's economy is really headed downhill, then it could cause a worldwide recession. Many of the companies that provide raw materials to China will incur stressed balance sheets, and some will default.