Leave the market at your own peril. Stay in the market at your own peril. That pretty much encapsulates every day in this market and today's no different with the averages opening nicely higher and then working their way down steadily throughout the day.
What's perilous about staying in the market?
First, I think we could be on the verge of a real slowdown in the U.S. economy. Why? Because of consumer and corporate confidence. Things just don't feel right in the country. We have a huge number of business people who seem frozen in their tracks. Isn't that what the long-dated Treasurys are saying with their relentless decline in yields, ostensibly because of a lack of demand? It's possible to create a recession even when the data seems strong. Consider what Michael Corbat, the CEO of Citigroup (C) said on 'Squawk on the Street' at the beginning of this month: "On our fourth quarter earnings call in early January, an analyst asked me what were the biggest risks that I saw and I said one of my biggest fears is that we are potentially talking ourselves into the next recession. And when you think about this economy so much of it is confidence. Consumer confidence and, in particular, business confidence."
I think it's awfully hard to have confidence of any kind when each day we learn about something surprising from the government of the United States that throws you off course. Take the lead story in the New York Times today, headlined "Trump Administration Hardens Its Attack on Climate Science." At the core of this philosophy is an attack on the sciences of man-made climate change.
So, let's say you are in charge of gigantic utility company with billions to spend to keep the lights on. What are you supposed to do? When Jimmy Carter was president he decided to wean us off foreign oil imports. He said we could be the Saudi Arabia of coal. Our nation's utility companies made a commitment to build coal plants that had about a 40 year life cycle. Until President Trump the presumption was as these plants are naturally phased out they will be replaced with cleaner burning fuel. But if the president of the United States doesn't believe that coal has any negative impact on the climate and he puts in place his own people in critical portions of the administration, like the EPA, perhaps the easier path is to simply retrofit the coal plants rather than close them down.
But what happens if Trump loses the next election? No Democrat who is running shares Trump's view on climate science. I bet if you asked each one they would rather believe in Creationism. Any retrofitting for coal will be viewed as nothing short of heresy.
So what do you do?
And nothing produces no new jobs, no growth, and perhaps more expensive power.
I can detail dozens of industries that could be upset by these issues. We need more pipes from the Permian to get oil where it has to go: U.S. refineries and export facilities. Will a Democratic regime allow the building - or more important, the completing of these pipelines? Will it even allow exports?
Second, the tariffs. The vast majority of businesses will NOT be impacted by the tariffs. But when you listened to all of these retailer conference calls last week you came away thinking they are the be all and end all of the world. The perfect industry to own when employment is strong, the one that you always buy when you have a robust economy, the retailers, simply can't be owned. There's nothing worse than trying to buy shares in a company when you can't tell if its estimates are going up or down with the tariffs being what could cause the swing.
When we pulled up with JP Morgan (JPM) CEO Jamie Dimon in Philadelphia last September, he talked about a tariff tiff. He was confident that things wouldn't escalate. This morning he said that the trade dispute is a "real issue." Trade, he says, " has gone from being a skirmish to being far more important than that. If this goes south in a bad way and you have other surprises that could be part of the thing that changes confidence changes peoples' willingness to invest."
There we are again: confidence.
And we shouldn't kid ourselves. We don't know what will happen with trade with Mexico. We don't know what will happen with trade and Brexit? Will it slow the entire continent where we do a ton of business?
Third, we may have low rates. But unlike previous yield declines, low rates have not led to higher stock prices by companies which pay a good dividend. The charitable trust, which you can follow by joining the Action Alerts PLUS club owns Dow (DOW) and BP (BP) , which yield 5.8% and 5.9% respectively.
Yields just don't protect you anymore.
Fourth, the parade of IPOs never stops and it keeps on chewing up capital. The unicorns have exhausted us. Lyft (LYFT) , Uber (UBER) , Luckin Coffee (LK) have made us very skittish about investing in IPOs. Sure Pinterest (PINS) , Zoom (ZM) and Beyond Meat (BYND) have been terrific. But shareholders of Pinterest were clobbered after that last quarter and Beyond Meat, frankly is crazy. Sure, it may be a disrupter. Yes it has good growth. But this company is about to go up against the Impossible Burger and Nestle's (NSRGY) veggie burger that has already been established in 1400 McDonald's (MCD) . The valuation is just too darned expensive. Period.
What's the peril for staying out of the market? Pretty simple: yesterday, the president, in Japan, told us that we are far away from a trade deal with China and the Chinese will regret that they didn't agree to the last deal right before talks broke down. But in the same breath he says that we will get a great deal. Do you want to be out of this market if we get a great deal? Do you want to be out of this market if we get any deal? Look at Apple (AAPL) . We are starting to get the number cuts I so feared because of a slowdown in China. But even after the number cuts you have a stock that sells for about 16 times earnings. Is that really dangerous? I guess so but with a deal you will feel like an idiot if you sold now.
Fifth, plenty of companies have almost no Chinese exposure, companies like Facebook (FB) , Amazon (AMZN) , Netflix (NFLX) and Alphabet (GOOGL) . You want to sell those fast growers knowing that their earnings trajectory is unimpeded by China? You want to sell (AMD) and then learn about how well its new chip, the one CEO Lisa Su waxed positively about not that long ago on Mad Money, the one that moves the stock up 10%? You want to be out of fintech when Global Payments (GPN) buys Total System Services (TSS) as it did today, sending the whole group skyrocketing?
Sixth, do you want to be out of a market where long-dated interest rates are radically low and the Fed might have to cut rates BECAUSE of these confidence issues? It was, in retrospect, a mistake for the Fed to raise rates in December of last year. What if the Fed rolls it back? Can you imagine being out of the market then? Talk about perilous. You would be a total bonehead if you left this market.
So, you are damned if you do and damned if you don't. What does the book say when you are in one of these situations? You need to have some exposure for certain. But not a lot. Because I think the president made it clear that things are going to get worse with trade before it gets better. So be patient. Don't pay up. Wait for your pitch. And in most cases, the pitch just isn't yet here to take a swing at.
(Citigroup, JP Morgan, Dow, BP, Apple, Facebook, Amazon and Alphabet are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells C, JPM, DOW, BP, AAPL, FB, AMZN or GOOGL? Learn more now.)