Just so we keep our heads on straight with the certain morning rally, here's another view.
Wrong! Rear Echelon Revelations:
Carrying the World on Its Shoulders
By James J. Cramer
9/1/98 12:15 AM ET
We stayed for four hours after the bell trying to figure out
why anyone would buy stocks right here, without any
resolution to the ills that are causing this downturn.
We couldn't come up with one.
We tried to develop a shopping list of stocks with good
yields that are certain to make their quarter, that are buying
back stock and that sell at reasonable multiples.
Couldn't come up with any.
We culled through our remaining longs to figure which ones
we could average down on without worry. We came up with
one: Philip Morris (MO:NYSE).
In other words, a bounce up from these levels, without a
resolution, will be a gift. A gift to sell.
There is a reason why this is the case. It has nothing to do
with the technicals, although they are quite awful. It has
nothing to do with the need for capitulation -- we had plenty.
The reason is that the world's economy has turned sour so
fast that we can't be certain that any of our companies, save
a couple of beverage-and-smokes guys, can make the
numbers.
Will people be so free to spend on that computer? Will those
who were going to buy a new car because they were feeling
wealthy now pull back because of the stock market's
losses? Has the whole economy become so
stock-rise-dependent that you have to be suspicious of any
company that needs a stock-profitable consumer to make a
purchase?
We think so.
Let's go back to that 1990 scenario again. When Iraq
invaded Kuwait, the market had an initial tumble down 200
points from 3100 -- let's call that the move down from 9300
to 8400 -- and then had a second vicious crack down to
2300 where it bottomed and squirmed while we waited for
the war to begin.
That would set us on a collision course for 6000, give or take
500 points. The problem with that scenario is that the
bottom was not put in until the events occurred. Here the
events that must be resolved include the fessing up of all
Russian loans and governments, the resolution of Japan,
Hong Kong, China, Korea, Indonesia, Venezuela and now
Canada, Brazil and Mexico as well as the
resignation/impeachment/
censure of President Clinton for lying to the American
people.
Tall order.
I think we should at least expect the market to visit the
levels we saw in October of 1997, when stocks dipped to the
Dow 6900 level. Remember, stocks saw that level on the
collapse of Hong Kong. Now we have the rest of the world to
contend with, so the idea that we take out that level makes
some sense to me. (Again, had Japan done the right thing
and the president come clean and Hong Kong let things
trade and Russia not screwed it all up, we'd still be in the
Big Bull Market, but they didn't and we aren't.)
I wouldn't be so negative if I didn't hear on the TV in the
background a zillion pundits telling everyone to sit tight and
not to worry. I'm worried, and I've got hydrochloric acid in my
veins from trading so long. But these financial planners aren't
worried? They think the solution is to buy Dell
(DELL:Nasdaq)?
Give me a break.
The solution is to preserve capital. We can buy Dell some
other time.
Random musings: Oh, so the Fed is going to bail us out?
How many times did I hear that today? Heck, the Fed wants
lower stock prices. It must avoid a Japanization of stock
prices at all costs. You simply can't get an economy back
on track after a stock market collapse like that of Japan. I
think the Fed would like to sell futures to the Dow 6000 level
and then cut rates, so don't get your hopes up.
James J. Cramer is manager of a hedge fund and
co-chairman of TheStreet.com. At the time of publication,
he was long Philip Morris, though positions may change at
any time. Under no circumstances does the information in
this column represent a recommendation to buy or sell
stocks. Cramer's writings provide insights into the dynamics
of money management and are not a solicitation for
transactions. While he cannot provide investment advice or
recommendations, he invites you to comment on his column
by sending a letter to TheStreet.com at
letters@thestreet.com. |
