Cramer: The New Third Rail of Investing

 | Sep 28, 2016 | 2:59 PM EDT
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This should be a halcyon time for so many different groups. Instead it's a deadly time and it's truly hard to get your arms around the toxicity of the moment. Specifically the banks, restaurants and retailers should be on fire by now; instead they are houses on fire and there's no letting up on the flames.

What's happening with these beleaguered groups as the quarter winds down?

Let's start with the banks. It was clearly the stated policy of the Federal Reserve coming into 2016 to raise rates several times because the emergency levels that we came into the year with are certainly not in keeping with the rate of employment growth.

You could argue that given the job creation, which is so strong, and the price of housing, which is so robust, we should have seen rates up to as much as perhaps three-quarters of a point if not more from where they were a year ago at this time. Instead, we have only had one hike because there's so much else that's not strong or awry in the country and the world.

For example, we got a durable-goods number this morning that showed almost no growth whatsoever. That's on top of various PMI numbers that are weak and retail sales growth that's pretty sickly. Of course, the rest of the world is taking rates down, so if we take rates up our dollar would, theoretically, skyrocket, making our exports even more anemic than they are.

Inflation is pretty much nonexistent and digitization keeps costs low, as do bountiful harvests that have caused intense food deflation. We've rarely seen such pricing pressure on foodstuffs and it is impacting every aisle, including even the natural and organic aisles, as the problems at Hain Celestial (HAIN) can partially be tied to.

It doesn't help that China almost imploded, that Brexit fever swept through Europe and that oil threatens to break down, something that did happen back in February, causing the Fed to halt any attempts to take action. "If it isn't one thing, it's another" has been the Fed's mantra, so there's been no increase since December.

That's caused immense pain for the group that had the most to gain from rate hikes: namely the banks, which at this point were supposed to be coining money because of how much they were going to make on your deposits. It just didn't happen and numbers that are soon going to be reported for the group will most likely prove to be too high, as the stocks are saying.

But it's more than that. There had always been a couple of offsets to the net interest margin; for example, the augmenting or profit by offering more services to each customer, services with a steady fee stream.

That, until a few weeks ago, was called the virtuous cycle of cross-selling, and the more aggressive, the more accounts opened per person, the greater the profit. But now because of multiple transgressions by Wells Fargo (WFC) by employees opening far more accounts than customers knew, cross-selling has become the vicious cycle that the bank must somehow stem. 

Of course, that's pretty bloodless. What we are really talking about is taking away the premium that Wells Fargo's stock has enjoyed vs. other banks because of what is now regarded as fraudulent cross-selling. Will it take its toll at the top? The board of Wells Fargo has managed to cut some of the compensation coming to CEO John Stumpf and the now-retired Carrie Tolstedt, the so-far silent leader of the bilking division, but it's not clear if the lawmakers who are to grill Stumpf tomorrow will be appeased. If there isn't some break in the momentum to this story, it is possible that Stumpf could lose his job and the cross-selling that has helped profitability will lose its champion.

Either way, no one is going to pay as much for the stock of what was once regarded as the premium bank, which then trickles down to what the whole market will pay for the banks. That means a huge chunk of the S&P 500 is in the doghouse with no recovery or reason to own them in sight. Quite a switch from the narrative we thought would be playing out.

It gets worse. The European banks are a disaster. The London banks, which seemed to be gaining footing, have seen their core franchises obliterated by Brexit. Some of the more well-known Italian banks are coming to grips with their potential insolvency. And Deutsche Bank (DB) is in dreamland where it somehow believes things are all hunky-dory despite relatively low reserves and very relatively high legal problems.

Deutsche Bank has historically been totally clueless to the ways of the American way of justice when it comes to banks, which has basically to stick it to them for mortgage transgressions from the Great Recession. Hence why, without much due process at all, Bank of America (BAC) , JPMorgan (JPM) and Citigroup (C) paid $17 billion, $13 billion and $7 billion, respectively. Now it's Deutsche Bank's turn and the Justice Department would like it to pay $14 billion for its role in the crisis. Deutsche, which has between $5 billion and $6 billion in legal reserves, regards that suggestion as an opening bid that must come down. Today's statement that CEO John Cryan gave to a German media outlet, though, is one for the books, saying he hopes Deutsche Bank will be treated, and I quote, "with the same fairness as American banks that have already agreed on a compromise." Huh? Has he talked to any execs from those banks or their attorneys? That's the last thing he should hope for because, if history is any guide, Justice will miscarry big time. My advice to Deutsche Bank: Shut up. 

The second sector that should have been rosy? Restaurants and retailers. Holy cow, have these stocks been bad. We got a pre-announcement last night of a dreadful number from Sonic (SONC) , a very consistent fast-food joint, which comes on the heels of a devastating number from Cracker Barrel (CBRL) . Both of these companies should have been beneficiaries of lower gasoline and higher consumer confidence. Nope, not at all. And the pin action off those results has sent the stock of every single restaurant chain into the gutter.

Retail's no better. Credit Suisse (CS) downgraded the already beaten-down Macy's (M) today from Buy to Hold. Its miserable trajectory has been a harbinger for most of the rest of retail, save the price-cutting Walmart (WMT) and, of course, the Death Star of retail, Amazon (AMZN) . Even the retailers that had been making a stand, like Urban Outfitters (URBN) and L Brands (LB) , have been smacked down beyond all recognition. This is all very extraordinary given how plentiful jobs are and how much spare change there is in the consumer's pocket because gasoline has stayed a lot cheaper than most of the oil prognosticators ever dreamed. Oh and Nike (NKE) , the once most steady of apparel companies? With U.S. sales flagging, it feels as retired as a Nike missile, even as I do think it's just a matter of time before it regains its stature, it just needs to acknowledge that it has lost it first. (Nike is part of TheStreet's Trifecta Stocks portfolio.) 

These stocks have become the third rail of investing. In other words, if you can avoid touching them, I would advise you to do so.

Of course, not all is lost. Tech's been strong. The semiconductor stocks are up 18% vs. a 3% gain for the S&P 500. The FAAA stocks - Facebook (FB) , Amazon, Alibaba (BABA) and Alphabet (GOOGL) -- have been running, but the latter got slapped with a sell call by Wedbush that reverberated mightily. It's Apple (AAPL) that's been the real star, with the stock rallying from $95 to $113 on a host of news stories, including higher sales and average selling prices for the iPhone 7 than expected, an exploding phone from competitor Samsung and a new initiative with Deloitte, a huge information technology consulting company that could make the enterprise, the stickiest customers out there, tilt at last toward what their employees use, Apple. Watch this deal: It isn't tactical or one-off. It's strategic, which means it could move the needle by taking the pressure off this whole "how many cellphones did you sell this quarter" treadmill. Wouldn't that be a godsend? (Wells Fargo, Citigroup, Facebook, Alphabet and Apple are part of TheStreet's Action Alerts PLUS portfolio.) 

As the quarter winds down, we have a paradox of banks and retailers and restaurants devoid of footing while tech's got legs. It's the opposite of what could have been expected and it's a major reason why things feel mighty gloomy even as it looks like we are going to get out of the worst month of the year pretty much unscathed.

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