What happens if the Federal Reserve does hike interest rates 75 basis points on Wednesday after saying repeatedly that 50 basis points was enough? I think it shows the Fed is trying to catch up to something not just of its own creation: the incredible wall of liquidity that does not let the economy cool. If Fed Chairman Jerome Powell is going to do that he should also double the amount of bonds for sale so we get the yield curve back to its normal state where longer term rates are higher than short term rates. It matters because we are almost universally considering that the only that can happen at this point is a recession, we just don't know how bad it will be.
I understand the fix the Fed is in. Who wants to root for Ukraine to sue for peace — seek a compromise that cedes some territory to Russia — because of horrendous losses? That would stop the upward pressure on food and gasoline and cause an environment that we would all want to own stocks. But profiting off potential genocide is just plain evil and the West will do its best to keep that from happening. Either way it won't happen soon enough for the Fed.
It's easy to hope that Chinese President Xi Jinping sees the error of his ways, especially given how open our society has become versus theirs. But only a dictator with total control over free speech would get away with an attempt to stop a disease that cannot be stopped on its own.
Almost all of us get this in the end because we have no way of not getting it. A plan to lock people down until Covid goes away only works if you are not letting anyone into a cordoned area. That's just too difficult.
In this country there are still many people who will get it — but because of their vaccines, they will live and not have to go to the hospital. The goal is, according to Humana CEO Bruce Broussard on Monday evening's episode of "Mad Money," to treat it like it is the flu. I can't tell you why Xi doesn't see that.
But we went home Monday night dispirited that we did not buy any of the tech stocks that got crushed because they were so expensive. (We did snap up more shares of Johnson & Johnson and Pioneer Natural Resources.) If the market is appeased with a 75-basis-point move without any big increase in bonds being sold, then the big techs that now sell very cheaply against their growth rates will bounce back hard because many are now at reasonable prices. We just didn't want to buy more at too close a scale as we have managed to hold off buying back a lot of what we sold at much higher prices.
On Tuesday, we will begin to put to the money to work that we have saved on the sidelines, 5% expecting a bounce now that we are minus 6.9 on the S&P 500 Short Range Oscillator, which means you have to buy. Anything above minus 5 means you have no choice but to buy.
But the main reason I wanted you to get this is because, through the Charitable Trust, I too feel the pain and as my old teacher at Goldman Sachs, hedge fund legend David Tepper, would always tell me in really bad moments "it is not yet the time to make money, it's the time not to lose money."
We can play for a bounce into a Fed meeting or after given the oversold conditions — but have no doubt about it, this is not over and it won't be until a winner is declared in the Russia's war against Ukraine and a loser is declared in China, the anti-Covid policies of Xi. It's not yet the time to make money, it's the time not to lose money, which means you can play for a bounce but accept that it is a bounce. We will need it to raise money after we put a small amount to work to potentially profit off of a massively oversold market.
We hate committing this reserve, we will do so slowly, only because I believe we can catch a bounce and then go back to a less all-in position.
(Jim Cramer's Charitable Trust is long HUM, PDX and JNJ. See here for a full list of the stocks.)
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