Jim Cramer likes to look at the market from all perspectives. That means listening to the fears of investors and interpreting what drastic valuations could mean for the future of stocks — not just what the charts like the VIX are indicating.
"Take, for example, some of the extreme valuations of the market. And when I say extreme, I am talking about genuinely out of control valuations," the "Mad Money" host said.
Cramer found some major disparities in the valuations of several stocks that were very intriguing and could be signaling a recession.
Meanwhile Campbell Soup trades at 20 times earnings, Kimberly-Clark is at 21 times earnings, Procter & Gamble is at 22 times earnings and Clorox is at 25 times earnings. All of these stocks are near 52-week highs.
So what do these disparities mean?
For the airline stocks, Cramer thinks this signals that earnings have peaked and are about to go down, maybe substantially. Multiples would not be this low if the earnings were going to stay or even improve versus last year.
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It could also mean that the earnings estimates are wildly aggressive and the numbers must come down severely.
"In other words, the market is saying that these seemingly cheap stocks like the airlines and the automakers are actually very expensive. You just don't know it yet," Cramer said.
All of these companies do business in countries that have very weak currencies. However, that is the case with the consumer-packaged-goods plays, too. So, then why are these stocks different?
"Let's just call it like we see it — these stocks are forecasting a recession," Cramer said. (Tweet This)
That is why even though Ford and General Motors offer big dividends; investors do not trust these stocks as a bond-market equivalent. They either think the dividend was added to pad a 10 to 20 percent decline in the stock, or they think the dividend will be cut.
As for the four consumer-products companies, the organic growth of Procter, Campbell Soup, Clorox and Kimberly-Clark has been minuscule. So, then who the heck would pay for more than 20 times earnings for these companies?
Investors recognize that all of these companies have gigantic energy costs, thus the lower commodity costs have become a real tailwind. The group also trades on currencies, so investors often buy these stocks if they think the dollar is peaking.
Thus, Cramer thinks the combination of positive currency swings, commodity costs and good yields make the consumer packaged goods group as attractive as the airlines and autos are unattractive.
"Both groups of stocks are forecasting a recession with less travel, less spending money and tighter credit. In other words, they are simply saying the same thing, but in very different ways," Cramer said.