Mega plano orçamental foi promulgado por Trump

[Ulisses Pereira]

"Worst Case for 2004: A Return to 1994"

By James J. Cramer
12/26/2003 11:04 AM EST


"The drumbeat of 1994. You will hear it again and again in 2004, with every Federal Reserve tightening.

People will try to scare you out of the market because of the 1994 scenario. It will be dwelled on ad nauseam. And I want to get you set for it, so that when it happens you don't sell the wrong thing. Because that's what the bears will try to get you to do in the giant tug of war that is the stock market.


Understand, I know 1994. Read my autobiography, Confessions of a Street Addict. Marvel at what a joker I was for trading the day my daughter was born, within one minute of the 50 basis-point tightening from 3.75% to 4.25% on May 17 of that year.

Worse, consider what I was doing that day when I should have been focused on my second daughter's birth. I was worried about the cyclicals, because I was short them.

Finally, consider that I did have the presence of mind, even as I was missing the most important part of life, to cover the cyclicals I was short. Because those shorts made no sense at all at that point.

Let's get the setting right: As in 1994, we are coming into a year with a full head of Fed-stimulated boom. (I don't want to compare this market to 1999-2000, where the stock market was leading the economy. In fact, the stock market was too far ahead of the economy!) As in 1994, rates are way too low. As in 1994, the Fed said it wouldn't take precipitous action.

As in 1994, I think the Fed will take precipitous action.

To jog my memory, I called up dozens of charts from that era. The results show a clear pattern, discernable even from the handful that I checked. Through seven tightenings, the cyclicals kept climbing. Through seven tightenings, the retailers, the homebuilders and the financials wilted. Through seven tightenings, we saw the drugs and the consumer nondurables stay stable and then ignite near the end of the tightenings.

And we saw tech staying strong with every single tightening. Tech led 1994. You could do no wrong in 1994 with tech.

Hmmm, could be the same in 2004.


What's interesting is that the cyclicals and the techs went up for two different reasons. The techs went up because of secular growth in IT spending and telecom spending. Will that happen again? Tough call. But I think capital expenditure has been starved enough in telecom and brokerage to make its increasing a reality.

The cyclicals went up because almost every time the Fed tightened, it said it was done tightening. That made it so you thought you had to bring in your shorts, which were all cyclical then.

Now, we could see an even more pronounced pattern. Unlike 1994, we have many, many more hedge funds with much bigger asset bases. I think it would be reasonable to think the effect could be 10 times bigger. But the hedge funds all still have the same playbook: Fed hikes cool the economy and hurt the cyclical stocks most.

The reality is that you don't cool the cyclical stocks if you keep promising you are done. The cyclicals cool eventually, but not in the first year of the tightenings; that's not enough time for them to work.

Now, with a weak dollar and many short-sellers, I think the Phelps Dodge/Alcoa/Dow Chemical trade might be an even better bet.

I am using 1994 as my worst-case scenario for 2004. That means the averages stay flat but investors who stay long the cyclicals and the techs will do fine.

However, retail, banks and brokers and homebuilders can't be owned if 1994 comes true.

Given that there are other variables that are positive in 2004 that weren't in 1994 -- a president who favors no taxes at all, great short-term/lousy long-term and an election that could be a landslide -- I think you don't need to avoid all banks and brokers and homebuilders and retailers. I do think, though, that it would be prudent to be aggressively underweight them just to be sure that you don't get caught up in a massive tightening cycle. Or, to put it another way, when you buy weakness, which is what I do, you don't want to buy the weakness of financial or retail. You do want to buy the weakness of tech and smokestacks. (I am lumping oil in with the cyclicals, by the way.)

So, the ultimate takeaway of the worst case: flat averages, big year for tech and cyclicals but totally at the expense of the retailers and the financials. "

(in www.realmoney.com)