"Gloomy Investors Miss Three Positives"
By James J. Cramer
RealMoney Columnist
3/10/2004 9:45 AM EST
The tape determines the mood. We are in a sell mode, have been for weeks now, and I think it is mostly because of the meteoric rise that we have had in one year's time. It wasn't sustainable and it has to be "booked" by people, despite the bubble talk and the sense that there is no skepticism in the market. I think the skepticism is actually quite thick. I keep thinking back to that story in The Wall Street Journal Monday about how some sage says that as soon as you see people who aren't in business watching CNBC during the day, you have to sell stocks.
Great advice. Can you imagine if you had obeyed that advice in 1996 and 1997, which, by the way, were prime CNBC-watching years for folks away from just businesspeople?
The profit-taking has created a gloom that has people interpreting everything negatively. So let me play devil's advocate for a moment and talk about the positives of the 10-year's action.
Coming into this year, I saw and heard three big negatives:
1. Interest rates were going to head higher, including short rates, which would make bonds more competitive with stocks. This is the 1994 scenario that I have outlined endlessly. This interest-rate increase would have kiboshed whatever people would want from stocks in terms of higher dividends, and minimize the new tax advantages of stocks with dividends.
2. The budget deficit had grown so out of control again that we would have had to face the fact that it was going to drive up interest rates by crowding out other borrowers.
3. Home sales and refinancings, which had led the recovery, would be kaput in 2004 because rates were going higher.
Now, consider this: The competition from bonds is even less attractive and the competition from dividends with tax breaks is even more attractive; the budget deficit has been countered by a shortage in Treasuries, of all things; and there could be another refinancing boom right around the corner. In fact, I expect to hear from E*Trade (ET:NYSE - commentary - research) and InterActiveCorp's (IACI:Nasdaq - commentary - research) Lending Tree, two of my bigger mortgage plays, that business in the next few months will be on fire.
Now, of course, because we are all gloomy about the soggy tape, we don't see any of those positives. We focus on oil and the high price at the pump. We focus on Kerry's chances of beating Bush and the political risk that entails. We focus on Intel's (INTC:Nasdaq - commentary - research) marginal guidedown. And, most important, we ignore Ingersoll-Rand (IR:NYSE - commentary - research) and Rockwell (ROK:NYSE - commentary - research) and Danaher (DHR:NYSE - commentary - research) and instead focus on the 10-year as the harbinger.
I am betting that this is all wrong. I have a ton of cash on the sidelines -- the most I have had since I started my Action Alerts PLUS portfolio -- and Tuesday I started putting it to work, anticipating the gloom's growing palpability. I think that the three positives I just outlined have been completely marginalized.
But they won't stay that way. Hmmm, smells like opportunity. "
(in
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Enviado: 10/3/2004 17:31
