Why the Early Cycle Came Late

On Tuesday night's show, Jim used Whirlpool as an example to talk about the run in early-cycle stocks that's taken place since July 15, explaining how the mutual funds all use the same playbook and buy the same kinds of stocks at certain points in the business cycle. But he also mentioned that this rally was postponed--you know the reasons why: the housing morass and high oil prices.

Why is this cycle different from all other cycles? Ordinarily we would've wanted to buy the financials and the retailers right as the Fed started easing rates (ideally right before), then bought the homebuilders as the Fed continued to cut, then the autos (there's a chart in Real Money: Sane Investing in an Insane World that does a great job of explaining all of this graphically). Obviously this time around, that wasn't the right move.

We got our first rate cut on Sept. 18, 2007, and our last to date on April 30, but the financials didn't bottom until July 15 even though the federal funds rate had finished falling from 5.25% to 2% six weeks earlier.

I think most people would agree that the combination of the housing/mortgage debacle with high oil prices (and high everything prices) caused the delay in the resurgence of these early-cycle stocks. They acted sort of like a dam. When the commodity collapse started and the market bottomed on July 15, that opened the mutual fund floodgates, and they started buying up everything "early cycle" much later in the cycle, and with greater speed, than they usually would.

That's caused a lot of missed opportunities, as stocks that would have gone up more slowly over a longer period of time vaulted higher in a matter of weeks, from Centex and Toll Brothers in housing, to J.C. Penney in retail which has vaulted from $27.65 at its July 15 low to $43.22 today.

Cliff Mason is the Senior Writer of CNBC's Mad Money w/Jim Cramer, and has been that program's primary writer, in cooperation with and under the supervision of Jim Cramer, since he began at CNBC as an intern during the summer of 2005. Mason was the author of a column at TheStreet.com during 2007, which he describes as "hilarious, if short-lived." He graduated from Harvard College in 2007. It was at Harvard that Mason learned to multi-task, mastering the art of seeming to pay attention to professors while writing scripts for Mad Money. Mason has co-written two books with Jim Cramer: Jim Cramer's Mad Money: Watch TV, Get Richand Stay Mad For Life: Get Rich, Stay Rich (Make Your Kids Even Richer). He is 100% responsible for any parts of either book that you did not like.

Mason has also had a fruitful relationship with Jim Cramer as his nephew for the last 23 years and will hopefully continue to hold that position for many more as long as he doesn't do anything to get himself kicked out of the family.

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