Investors must boldly go where few have gone before, Jim Cramer said Wednesday on CNBC’s “Mad Money.” In other words, they must learn to sometimes stand up and challenge the conventional wisdom of the markets.
Stocks rallied on Wall Street Wednesday, as the Dow Jones rose 92 points, or 0.7 percent, to close at 12,627; the Nasdaq gained 21 points at 2,875 and the S&P 500 edged up 11 points, or 0.9 percent, to end at 1,331. But three key factors continue to weigh heavily on investors’ minds.
Ongoing chaos in Europe, slowing growth in China and the U.S. fiscal cliff of 2012 each spells a grim outlook for the global economy. And all are valid concerns. “They’re intractable,” he said. “They make us want to sell everything and go home, comfortably ensconced in short-term Treasurys.”
But at the risk of sounding like a “reckless optimist,” Cramer pointed to several crucial cliffs — tied to personal household debt, corporate spending, municipal bonds and housing — that many feared back in 2008 and that have all seen substantial recovery by now.
Household debt that once far exceeded disposable income has fallen to the pre-stock market boom levels of 1994, he said. And while corporations were once bogged down by layers of debt, companies are constantly paying off debt by issuing equity or new debt at much lower rates — especially among the financial space. Municipal bonds have made “terrific investments,” and while we did fall off the housing cliff, we’re now seeing several straight months of “good sales” and higher prices across the board.
In this same vein, Cramer broke down the woes facing the world and explained why they may not be so terrible after all.
First, while the situation in Europe does seem catastrophic, he said the biggest fear of debt contagion has already long been priced into the U.S. market. And while commodity prices are down big time, “people are still way too bearish on how much oil we’re going to produce in North America.”
As for China, the country made its first rate cut earlier this month and the central bank has plenty of room to make more.
Finally, there’s the U.S. fiscal cliff. Cramer suggested it may not end up being a cliff at all, and that going over could, in fact, be positive. “Maybe it’s a chance to abolish the uncertainty and become a solvent nation,” he said. “And if we were to simply borrow a trillion dollars in 20-30 year paper, we wouldn’t be worried about the cliff at all.” He added that embracing natural gas would also create more jobs, lower gas prices and increase U.S. national self-sufficiency.
“No, I am not saying it's time to get all bullish,” Cramer said. “I am simply saying they will snap back much faster than they did in 2008 [and] 2009, when, not if, it happens.”
The bottom line: “We invest in stocks and not the Chinese real estate, Spanish bonds or U.S. tax rates,” Cramer said. While the bear case may sound smart, there’s real money to be made in “considering that there may not be as much bull in the bull case as you think.”
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