damn! cramer bullish gold/bearish stocks, fade away -g:
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Looking Beyond the 'Big Rally'
By James J. Cramer
02/18/2003 12:04 PM EST
What will break us out of the pattern of eternal pessimism-oversold-rally-selloff again? What will get us out of this nightmare?
Can war? Only if it allows oil to go to $15 a barrel, where the majors seem to be saying it will go.
Can peace? Not if it keeps the terror premium in bonds and makes equities too risky for all but the most nimble or the most long-term.
Can tax cuts? I like the dividend tax-cut plan because it should force the stocks with good dividends to trade higher. But tax cuts aren't the real answer because most of them affect the consumer. And the consumer, after this multi-year binge, really lacks for nothing. In fact, I could argue that the tax cuts just make homes more valuable, and they are valuable enough as it is.
What really will get us out of the bear-market rally/bear-market decline cycle? I think the cycle can be broken only by a radical change in the supply of stocks, and a radical consolidation in many industries that have no pricing power.
I am focused on these issues because I think we are about to rally and rally hard, and I want to figure out whether it will be a rally that should be sold or bought. In 1991, I wanted to buy the rally because rates were still high, the Federal Reserve had a lot of work to do, we were at the beginning of a major technology ramp with massive consolidation ahead of us and we were facing a fiscally conservative, pro-growth Treasury.
Now, because we seem incapable of generating the consolidation and still are dealing with the aftermath of an enormous bubble, I'm not so sure I want to buy this one. It is entirely possible that we could rally and nothing would happen. We might see no pick-up in business to speak of other than in retail, and no consolidation because takeovers are so suspect and bankruptcy doesn't seem to take out capacity the way it did in the early 1990s.
In other words, we could have a monster rally like those we had after July and October of last year, maybe something even bigger if there is a war and a victory, less if there is no war and no victory just a stifled peace -- and you would have to sell the market, not buy. You would have to get rid of equities because there is still no pricing power and we are faced with deficits that eventually will cause inflation and a reduction in the value of our currency beyond what would be considered a good thing.
Looking Beyond the 'Big Rally'
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Under that scenario, the only assets really worth owning would be gold and gold shares.
I know that's a bearish outlook, one that wouldn't jive with my long-term assessment of equities, at least for the foreseeable future. But increasingly I am drawn into the long-term bearish camp because we seem to lack the will as a nation to make the tough choices between having no government of any importance -- the logical endpoint of the endless plan to reduce taxes -- and having a government that allows capitalism to flourish with low inflation.
Don't get me wrong, I would love it if we could grow our way out of the slowdown, as my television partner Larry Kudlow believes. That would be terrific, painless and incredibly bullish.
I long have felt that as long as inflation is under control and interest rates remain low, we're in an ideal world for equities. But I just can't see how we can cut taxes endlessly, support the military in a worldwide war state, provide the services the country needs to be strong and manage to grow the economy. Further, I can't see how our total lack of financial discipline -- as opposed to the strict discipline we had in the 1990s -- will produce a booming equity market. We can't have the exact opposite of what produced a boom -- low inflation, peace, tight control over spending, a treasury surplus -- and expect it to produce another boom.
It just can't be that simple. |
