Cramer: Do We Have to Listen to Bonds? Sadly, Yes

 | Jun 20, 2017 | 4:20 PM EDT
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Every day is the last day of the bull. It's been that way for as long as I have been in the market and it's going to stay that way. It's just a fact of life that when you get a day like today that repels the averages from double-digit gains, you are going to hear that the bull has died of exhaustion after a long, hard run. RIP the bull.

So tonight let's deconstruct the latest in a long line of bull obituaries so we can put it all in context so we know what killed the bull one more time and why it can be resuscitated as it always has since I got in the business of managing people's money 37 years ago.

First, as I always tell you, if you want to know the key to the stock market, you have to know the key to the bond market, which is the benchmark 10-year Treasury.

I hate bonds. Oh my, how I hate them. They are so boring. You buy them. You get your money back. In the interim, you get paid a little money. They couldn't be more opposite stocks.

But from the day I walked in the door at Goldman Sachs in the early 1980s, all I heard was the bonds, the bonds, the bonds. You don't need to think. They will tell you what to think.

This bow-down and total fealty to the bond market always revolted me. I do all my own homework. I interview hundreds of CEOs. I have the pace of business of so many companies.

Yet somehow my brain is trumped by the bond market? Somehow I might as well check my brain at the door and see what the bonds are saying?

Sadly, the answer is yes, at least when it comes to the day-to-day nature of the markets. Why do we have to trust the bonds and not our own brains? A couple of reasons. First, bonds represent trillions of dollars of activity, much more than the stock market, so you ignore trillions of dollars of decision making and firepower at your own risk.

Second, bonds are right far more than they are wrong when it comes to the entire stock market. I say entire market because obviously if a company reports a remarkable quarter, it can swim against the bond tide. A takeover transcends bonds entirely. And there are always stocks that do well because of the bond market's direction.

Today bonds rallied hard and interest rates fell, signaling to everyone who follows the bond market -- which is pretty much everyone who manages any sort of money -- that we have a big slowdown ahead, which is going to come with a lot of deflation, something that may not be as good for business as we think.

Remember, I am not saying I think this. I am not saying stocks are per se bad because of the bond market. I am saying there is a thesis at work that says, "Don't diss the bond market; it knows more than you and it is saying that demand is weak enough out there that we shouldn't be so quick to project terrific growth rates from the economy or rate hikes from the Fed."

We are all allowed our own interpretation of what is causing the bond market to lecture us like this.

My thesis?

I have a twofold explanation and it isn't as dire as the bond market indicates. In fact, I think the bond market is prone to exaggeration and today's one of those days where we are getting bond-market hyperbole.

First, bond buyers are transfixed by oil and its plunge today down to $43. I would say that if you are at all close to this industry, you know oil's getting crushed because oil companies don't have marketing departments. They don't have people who say, "Wow, this market doesn't need a lot of oil right now and we can't advertise to people to buy more of it."

Instead they keep pumping and pumping and pumping regardless of the price. At least for now. I think demand's fine. It may be better than fine. I also know that when oil was at $53, we, with the help of our own commodities chartist Carley Garner, said it would go to $43 in a heartbeat because there are way too many speculators betting the wrong way. Carley and I think a lot of those speculators are being blown out, and while it is messy, I think it smells more like a bottom than a new top. Why? First, because when everyone loved it, we hated it. Second, now we are hearing about analysts saying it's going to the $30s. We always hear this from people when it is going in the low $40s, as it did in November. I think we had clear heads when we made a called shot for a 10-point decline, and I am willing to declare victory and say the big move down has been had.

Nevertheless, regardless of why oil has gone down, it's deflationary for certain. I just wish it were lower at the pump.

The second round of deflation? Amazon (AMZN) . Today Amazon announced some plan to be able to take over fashion with try on at home and send back. I guess they are willing to bet women won't buy clothes, wear them Saturday night and then stuff 'em in a box to return to Amazon.

Today dresses, tomorrow the world.

We can laugh, but Amazon is getting out of control when it comes to wrecking the price structure of everything the consumer buys. The whole consumer price index is being Amazoned and we are at a moment where some might say the Fed might have to say, wait a second, Amazon is mowing down inflation to the point that we don't need to raise rates anymore.

The third form of deflation? Congress, which doesn't seem to be able to do anything to stimulate the economy despite all sorts of protestations. Do you see infrastructure spend? Do you see tax cuts?

I don't.

So what happens? The stocks of the industrials go down because the bonds say slowdown. The bank stocks get hit because the bonds say no rate hikes. Tech stocks get pounded because the bonds say the economy isn't moving fast enough to buy more tech. Oh, and the drug stocks go up because they do well when the economy slows.

How "true" is this story? Well, today, it's certainly true. Today we are projecting all the bond market's thoughts on our stocks. Today they reflect the sum of all of our deflation fears.

Here's the issue, though. What happens tomorrow if oil rallies on inventories? What happens if Congress actually does something that looks like it might be helpful? What happens if someone from the Fed says it is conscious of Amazon's thermonuclear war against higher consumer prices but says, so what? We have to do our job and get rates higher because, as Goldman Sachs (GS) CEO Lloyd Blankfein said, things are pretty good. That's more important than Amazon or oil or Congress. Oh, and can we just for a moment recognize that lower oil prices and lower consumer prices are actually good?

Oops. Sorry.

The bonds were a cruel taskmaster today. We can't ignore them. However, we must not be enslaved by them. Today, we were manacled to bonds. Tomorrow, bonds could take us in another direction or the bonds could be more positive about growth than they let on in this session's trading. They do play it pretty close to the vest. Don't ignore them, don't let them be your only master. Common sense can always be a factor, too.

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