Confused by Market’s Contradictions? Cramer Explains

Very little in this market seems to make sense, Cramer said Wednesday. Until, that is, you look at things through the prism of history.

If investors had questions about the action, they would, at least at first, be right to ask. How can energy push higher when 10-year Treasury yields under 3% should indicate a lack of demand? Why are high-quality growth stocks so cheap – 11.5 times earnings – as the S&P 500 flirting with 1,040 implies? Shouldn’t gold sell for half of what it’s worth right now if Treasurys are right? Because gold acts best in inflationary, not deflationary, times. And is the euro cheap or expensive? That seems to depend on whether you compare it to the growth of Germany and France or the struggling nations of Spain and Greece.

But here’s how Cramer puts these seeming contradictions into perspective:

Gold has risen in price in a deflationary environment before, back when Europe slipped into a deflationary spiral that ended with the Weimar Republic’s hyperinflation. Cramer said this led to “total worldwide chaos,” and it paid to be in gold when the chaos hit.

The euro, meanwhile, is trying to stabilize despite problems with the PIIGS: Portugal, Ireland, Italy Greece and Spain. But Ireland’s economy has improved, Italy’s problems were always “vastly overblown,” Cramer said, and as goes Spain so goes Portugal. And the rebound in Spain’s megabank, Banco Santander, means there’s now less reason for concern about that country. Yes, there’s a good chance Greece could default, but Cramer doubted it would send the euro down to $1 from its present exchange rate of $1.22. Plus, both the International Monetary Fund and the European Central Bank seem to be getting the Continent’s debt crisis under control. In the very least, they’ve made it manageable.

In regards to oil, Cramer said there has been no retreat from demand – other than “a bizarre hedge-fund short squeeze followed by liquidation” – since 2004, when China’s growth really revved up in a meaningful way. If things were bad, the price per barrel would be in the $40s, not near $80.

The problem with the S&P 500 is that investors have come to base its movement up or down solely on job creation. If we get jobs, up it goes. Otherwise, it sinks. But that negates the other variables that should be at work when valuing the stocks in this index, Cramer said. A lot of S&P companies are doing well overseas; others that have nothing to do with jobs are thriving here in the States. Even those that are exposed to jobs, though, are trading for much less than they should.

An even bigger problem – in fact, it’s the problem, Cramer said – is that the fundamentals just don’t matter. Instead, double- and triple-leveraged exchange-traded funds and high-frequency traders have separated stocks from their underlying companies. And the S&P 500 is a perfect example of this. Given the variety of companies that comprise the index, they should not move as a group.

“All of the relationships that used to hold true for gold, oil, Treasurys, the euro, the S&P – none of them work anymore because stocks have become commoditized, trading in lockstep with each other,” Cramer said. “And I am sick of bemoaning this new reality.”

But, as always, there are opportunities to be found in this market madness. Investors can buy plenty of stocks now with yields much higher than normal because they are a part of the S&P: DuPont , PPG Industries , Bristol-Myers Squibb or Exelon . They could also buy Union Pacific , which is trading below its historical value. Or 3M , trading at the same level as its peers even though the company is doing much better than they are.

Cramer’s message for the day: Stay in the game, no matter how ugly the action is. That’s the only way to win.

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