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Wrong! Tactics and Strategies: Wishing for Time
By James J. Cramer
5/16/00 7:58 PM ET
Tonight during the Yahoo! chat I had with Bill Fleckenstein, we were
struck by the simplicity of one question, one stunning question that we
all must answer: Surely the market is "worse" than it was before these
rate hikes, so isn't it logical to believe that the market will be
lower, not higher, in the future?
I am paraphrasing the question, which should be available in transcript
form later this evening. But the simple nub of the question not only
can't be ignored, it is central to the real worries we have at our
firm.
Until we see definitive signs of a slowdown, we have to expect that the
market will be hard-pressed to make new highs. New highs just seem
unlikely, given the damage that higher rates do to the system.
Individual stocks that are not leveraged to the economy can make new
highs as they are not going to fall prey to higher rates. But most
companies do worse in this environment, not better. Despite the
oblivious nature of Buzz and Batch, a prime rate that is now at 9.5%
will slow down building and construction and deal making. The cost of
money does matter.
So why buy stocks? Because, as I said over and over in the 1994 series,
if the economy slows, this Fed hike will be the last Fed hike and you
have to buy the last Fed hike with reckless abandon. Do I think it is
the last Fed hike? Check the series. I said the Fed doesn't even know
that. Do I think that the economy is slowing down? Yes. Is it slowing
down fast enough to please the Fed? Maybe -- after this hike, it is.
What happens if we get a slowdown? The Fed gets off our back.
What is missing here is time. We need time for earnings to catch up to
multiples. We need time for the hikes to slow things down. We need time
for the economy to cool. Only then will it be right to go to new highs
again. And any time we try to rush that, you can bet we will just be
met with more rate hikes, and one of these hikes is going to tip the
balance between people putting money in the market and putting it in
cash.
Let's hope, for the bull's sake, it doesn't have to get that far.
James J. Cramer is manager of a hedge fund and co-founder of
TheStreet.com. At time of publication, his fund had no positions in any
stocks mentioned. His fund often buys and sells securities that are the
subject of his columns, both before and after the columns are
published, and the positions that his fund takes 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 at
jjcletters@xxxxxxxxxxxxxx
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