NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.
This Market Mocks Discipline
Posted at 2:18 p.m. EDT on Friday, Sept. 13
I found myself stymied this morning on "Squawk on the Street." David Faber, Carl Quintanilla and I were all talking about what's about to happen in Washington -- that we could be looking at another federal government shutdown. Judging by the rhetoric that's precisely what is going to happen. We'll be staring right down the barrel of another federal fiasco fewer than three weeks from now.
I then turned to Carl and said that when that occurs we are going down because there's no way this stock market can handle that kind of pressure from Washington. We're going to hear about social security checks not going out and possible U.S. government debt downgrades and these will all weigh on the stock market.
So he asked me a logical question: do you just sell now?
I thought about it for a second and said, "you know, I have been advising people to so some selling but, candidly, I've been wrong."
Then David asked what will I be thinking as we get closer. I told him here's how it works. I will say do some selling right into the event and the market will keep going higher and I will then say, that's it, I can't stand it, just go buy something and that will mark the top.
Of course I was being facetious. Sure, the market's stronger than I expected. But it is also frothier than expected and I don't like froth. Take Ulta Salon , which ran up $18 today after it reported a better-than-expected quarter. Now, I know there were people who thought that Ulta might miss. It's a very-highly-valued retailer and it's heavily shorted. But this rally today, these 18 points, weren't only about a short squeeze. There are tons of portfolio managers who simply can't resist owning a retailer that actually had a better-than-expected quarter.
If you don't believe me, check out the runs in Lumber Liquidators , another richly-valued retailer that has been beating numbers handily and has ample runway to grow.
Candidly, I just don't like this kind of activity. I don't like it when stocks go up 18 points on some better-than-expected news. But we have been having exaggerated moves to the upside for days now.
Today, Safeway has been roaring almost $2 because it was upgraded by Credit Suisse. Sure, it was a Sell-to-a-Buy recommendation, which hints that maybe something's going on that's bigger than a potential earnings surprise. But the real truth is that people are just incredibly enthusiastic about stocks, much more than I have seen in some time. We saw it yesterday, too, when Walgreen made a gigantic move, one of the best in the entire S&P 500, when Goldman Sachs slapped a Conviction Buy on the name. That, too, is a little ridiculous.
Perhaps the whole coloration of the stock market has changed. Perhaps skepticism is being suspended, not unlike the way it was in the 1980s and the 1990s. But, to me, this is a little too much. Still, as I completed the discussion with Carl and David, it became clear to me that these same worries that I articulated today could have been made any time in the last few weeks. It left me boxed in. My discipline says you can't chase. But the market's mocking discipline now on a full-time basis.
My conclusion? I can't suddenly embrace froth when I see it, not when the government's on the eve of shutting down and Washington's been the proximate cause of all of the big selloffs we have had in the last few years. That means I have to just trim and wait. I trust I won't end up screaming, "That's it! I can't take it anymore! Go buy anything you want!" But I have to tell you, for me, September, which is supposed to be a mighty tough month, has only been tough for those who have been too negative. This market's not favoring the disciplined now, and as someone who thinks discipline is the key to successful long-term investing, I am staying cautious, hoping and betting that we will get a better opportunity to buy the stocks I want so much but just can't chase because that's just not my style.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.
These Stocks Are Flying Too High
Posted at 11:49 p.m. EDT on Friday, Sept. 12
There are a lot of ways to measure froth. Many would say that you gauge it by looking at the action in the stocks of highflying companies that don't have highflying earnings per share.
They look at the action, say, in Tesla Motors and Netflix and declare it insanely and unsustainably bullish, given that Tesla has rallied 386% and Netflix has galloped 225% since the year began. I get that. While there are many good things happening at Tesla, including strong sales for its new cars, and Netflix has had tremendous success in original content such as "House of Cards" and "Arrested Development," I don't blame a soul for wanting to take profits in either name, as these are cult stocks, and cult stocks don't have a lot of rhyme or reason to them. They are just loved. My hat is off to the Morgan Stanley analyst who nailed Netflix and downgraded it today. What a call.
To me, a better sign of froth is when regular stocks react to regular upgrades. For example, today Walgreen gets added to the Conviction Buy list over at Goldman Sachs, and the stock pops an astounding 2 points. On an upgrade! Or how about Kroger ? I have been saying it would have an upside surprise when it reported today. That's exactly what it did, and I figured the stock could have a nice gain. But it immediately flew up a dollar as if the quarter were incredible, which it wasn't. it was just plain old good.
Or how about the action in Dominion Resources when it just got approval to build an export terminal for natural gas at its Cove Point facility? This was a totally expected event, something that you would have heard repeatedly when we interviewed CEO Thomas Farrell many times on "Mad Money." But the stock immediately traded up 3 points on the news. This is a utility, for heaven's sake. The company is also going to form a master limited partnership with some good Marcellus shale assets, and that's some positive news, but the idea that it should be up 3 on that is also fanciful. The stock settled down later, but the enthusiasm just got way ahead of the story.
Or how about the action in Cheniere Energy jumped up big on the Cove Point approval news. Huh? They are competitors, for heaven's sake. Cheniere should be going down, not up. That's just crazy.
How about Yahoo! ? The consensus about yesterday's interview with the CEO, Marissa Mayer, is that it was a terrific cheerlead, a great sign that things remain on course for the turnaround. But I heard nothing new that was substantive. No matter, the stock jumped a buck on it.
Let's not forget Facebook , which goes up every day on every single price target bump, bumps that are happening only because the stock has been going up. It's a self-fulfilling prophecy.
Now, I am not saying that stocks shouldn't be going up on legitimate good news. There's nothing frothy about Qualcomm going up on a renewed and aggressive buyback. And negative news, a downgrade of Cliffs Natural Resources for example, did take the stock down after a nice run.
But the idea that Wall Street research can have this positive power is something that signals either a reversion to the bull markets of the 1980s and 1990s, long-lasting runs that were led by bullish Wall Street, or a sign that the market has just gotten way ahead of itself and it just plain too frothy for me.
I am thinking right now that it's the latter. Maybe, perhaps, I will be willing to flip back into 1980s and 1990s mode and just admit that caution has become a big mistake, but right now I would prefer not to add money to the stock market and instead pull back a bit and wait for a better, less frothy entry point. Somehow I think I will get that chance.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long FB.
- the importance of discipline; and
- three high fliers.