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Look for any piece of news that smacks of an improving economy to send stocks falling next week,...

Look for any piece of news that smacks of an improving economy to send stocks falling next week, warns CNBC's Jim Cramer. Why? Big money investors will interpret any positive economic signs as a signal that the Fed is about to pull back economic stimulus rather than risk runaway inflation. Still, he says, there may be opportunities in the pullback, particularly in the bank, tech and industrial spaces. Just says away from anything with a higher yield, like utilities and MLP's.
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Comments (37)
  • Voice of common sense
    , contributor
    Comments (119) | Send Message
     
    cramer is a total idiot and the best contrarian indicator ever. Do the opposite of what the idiot says.
    31 May 2013, 07:52 PM Reply Like
  • Joe2922
    , contributor
    Comments (421) | Send Message
     
    Cramer and Hilsenrath both have it wrong. Ben clearly told us he will taper this year. Data means nothing, only UE matters for funds rate. Transparent Ben.
    Not as much UST for sale, tapering is a must. The time to sell the market is very close, next week:
    http://bit.ly/WpVqYk
    1 Jun 2013, 09:22 AM Reply Like
  • rhgordon3505
    , contributor
    Comments (28) | Send Message
     
    cramer could never be a one-handed stock tout because he would never be able to "on the one hand...but then again, on the other..."
    31 May 2013, 08:04 PM Reply Like
  • deercreekvols
    , contributor
    Comments (5758) | Send Message
     
    "Just says away from anything with a higher yield..."

     

    What?
    31 May 2013, 08:17 PM Reply Like
  • JohnBinTN
    , contributor
    Comments (3816) | Send Message
     
    says = stay, I would think.

     

    Anyways, seems like anything with a decent yield is being punished. I consider it a sale on some of my favorite stocks. I love buy, hold, and monitor. No desire to 'trade' in this crazy market.
    31 May 2013, 09:00 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    It's about relative value.

     

    The theory is that dividend-payers have been serving as surrogate bonds due to QE and near-zero interest rates. This has created a huge run-up and the formation of a bubble in dividend-payers. If interest rates continue to rise, money will leave the dividend-paying stocks in favor for government bonds with a now-higher yield.

     

    It's kind of like interest rate risk on a bond. What happens to the price of a bond you own if interest rates go up?
    31 May 2013, 09:01 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5354) | Send Message
     
    Same nonsense that was trumpeted last Nov when the supposed "tax" changes would hurt div stocks..

     

    Now after a slight tick up in interest rates the 'crowd" is running again, believing competition for yield is on the horizon.

     

    I suggest using pullbacks on solid div growth payers as a way to build wealth over the long term.
    31 May 2013, 09:03 PM Reply Like
  • IncomeYield
    , contributor
    Comments (2077) | Send Message
     
    So, you're going to take a 2.2% ten-year (before taxes!) vs. VZ 4.2%?

     

    I know, I know, VZ share price could go down. it could also go up and way up from here over 10 years.
    31 May 2013, 09:15 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    IncomeYield,

     

    No, I'm not going to buy a ten-year with a 2.2% yield. But choosing to ignore what OTHER people decide to do will only hurt you financially.

     

    Think about the economics of the situation: VZ and the ten-year are competing goods. At equilibrium, the marginal utility of VZ (risk-adjusted returns of holding an additional $1 of stock) = the marginal utility of the ten-year. Then the yield on ten-year goes up, increasing its marginal utility (risk is the same, return is now higher). Since marginal utility must equal marginal utility, VZ's marginal utility must go up.

     

    How to we achieve a higher marginal utility on VZ? With a higher yield. The only way to achieve that? A lower price. Therefore, sellers drive the price down until another tentative equilibrium is reached (where the marginal utilities are equal).
    31 May 2013, 11:29 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5354) | Send Message
     
    Thetadecay,
    Agree with your analysis, but don't dismiss the fact that dividend growth for the long term investor trumps that. Not referring to VZ specifically , but if the market sells these stocks hard as an overreaction , it will present a nice buying opportunity..
    1 Jun 2013, 09:30 AM Reply Like
  • urm175
    , contributor
    Comment (1) | Send Message
     
    If the price of VZ were to go up over the 10 years, then that would lower the risk of holding this stock. Would that not increase the marginal utility of the VZ yield? Is that not a way for equalizing marginal utility instead of VZ's yield having to increase?
    1 Jun 2013, 12:23 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    Fear,

     

    I agree. To me, a blue-chip yielding 4% has a much more attractive risk-adjusted return than a 10-year yielding 2.2%. But I am an individual investor with a higher risk-tolerance... Not everyone sees it that way (many big-money players do not).
    1 Jun 2013, 12:27 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5354) | Send Message
     
    Theta,
    Agreed, and its amazing how the big money managers often get it wrong :

     

    "The typical hedge fund generated a YTD return of 5% through May 10, compared with 15% gains for both the S&P 500 and the average large-cap core mutual fund ... Hedge funds returned an average of 3.5% in 1Q 2013, lagging the S&P 500 by 700 bp."
    - Goldman Sachs Hedge Fund Trend Monitor Report , May 22, 2013
    1 Jun 2013, 12:33 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    urm175,

     

    When I say risk, I am talking about risk of default (on the bond) and risk of not cutting the dividend (on the stock). A run-up in the price of a company's stock does not affect risk. Company-specific risk is affected by things such as the company's credit rating, its earnings/revenue trends, changes in the payout ratio, etc. An increase in stock price does not lower risk, because it does not make it more likely that VZ will continue to pay it's dividend. Perhaps if VZ had a huge price appreciation and then underwrote a second-offering (company receives a sizeable cash flow), risk would be lowered, but the price simply going up does not do this.
    1 Jun 2013, 12:38 PM Reply Like
  • ThetaDecay
    , contributor
    Comments (107) | Send Message
     
    Fear,

     

    We're getting into a whole other topic of discussion, but let me briefly add that I agree with you. I believe the widespread practice of pricing risk (in regards to blue-chip dividend-payers vs fixed income) has it wrong. AT&T has been increasing its dividend annually for over 25 years, through many, many different business cycles. Are the odds of a dividend cut really so great as to justify such a dramatically higher yield?

     

    But citing hedge fund YTD returns is not really fair. Many of those hedge funds do not deal with equities, or, if they do, have very low beta exposure. I think a more fair data point would be comparing the index to a basket of long-only mutual funds.
    1 Jun 2013, 12:53 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5354) | Send Message
     
    Theta,
    Thanks for making the point and I'll concede that about the hedge fund types, you are correct.. We got off topic anyway..

     

    Happy dividend investing
    1 Jun 2013, 02:15 PM Reply Like
  • dc984
    , contributor
    Comments (637) | Send Message
     
    cramer: always a day late and a dollar short
    31 May 2013, 08:27 PM Reply Like
  • InvestoBullSG
    , contributor
    Comments (178) | Send Message
     
    I believe in accumulating more good quality higher yield dividend stocks if the markets are going down further.
    31 May 2013, 08:53 PM Reply Like
  • InvestoBullSG
    , contributor
    Comments (178) | Send Message
     
    I'm still accumulating cash bulls & cows around this world, into my stocks portfolio.
    31 May 2013, 08:56 PM Reply Like
  • Ted Bear
    , contributor
    Comments (607) | Send Message
     
    Crammer made his bed with the 'pile into Bear Stearns' call, and the 'can't get enough Apple at $700' argument. I think he's a pretty bright guy, but too smart to be a good trader. Now, as an entertainer.....
    31 May 2013, 09:04 PM Reply Like
  • Hendershott
    , contributor
    Comments (1586) | Send Message
     
    Cramer might be right about the market but the failed inflation argument is getting old. There won't be inflation unless consumers get more money, wage/price spiral. The Fed has already given definite and clear conditions for tapering. Oh well, the market has to trade on something, rational or not. Never let the facts get in the way of a good theory.
    31 May 2013, 09:06 PM Reply Like
  • IncomeYield
    , contributor
    Comments (2077) | Send Message
     
    Traders, trade the investors, and we have to trade the traders.
    Not really that hard. A fairly predictable bunch.

     

    I posted a bunch of times that SPY would sell off when the 10 year rate crossed-over the SPY div yield.
    31 May 2013, 09:17 PM Reply Like
  • Retired User
    , contributor
    Comments (1803) | Send Message
     
    Too late. Inflation already baked in the cake.
    31 May 2013, 09:10 PM Reply Like
  • Tack
    , contributor
    Comments (13576) | Send Message
     
    It's all very simple, as usual.

     

    Wait and watch the hysteria build, and whatever gets sold off most viciously, and supposedly has no future if there's no QE or rates rise, is exactly what will be the best value. That the market will drive down yield stocks of all types, regardless of their business models and outlooks, just makes the opportunities that will arise even better.
    31 May 2013, 09:22 PM Reply Like
  • Zeus2012
    , contributor
    Comments (706) | Send Message
     
    Exactly! WAY overreaction by the market and Cramer is not helping anyone with his hysteria.
    1 Jun 2013, 08:00 AM Reply Like
  • KJP712
    , contributor
    Comments (452) | Send Message
     
    Cramer Translation: Head to the Beach.
    31 May 2013, 09:43 PM Reply Like
  • WMARKW
    , contributor
    Comments (10463) | Send Message
     
    "Big money investors will interpret any positive economic signs as a signal that the Fed is about to pull back economic stimulus rather than risk runaway inflation."

     

    So the "big money investors" would rather have an artificially stimulated economy than one that can thrive without artificial stimulus???
    31 May 2013, 10:24 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4091) | Send Message
     
    Are we living in an inverted world? And why getting rid of high yield - not high beta?

     

    Cramer usually talks faster than his brain can think. The result is some incoherent talk in wich back mirror view is mixed either with some euphoria or doom. Mixed into this are usually flying coffee mugs and bulls and other stuff and a raging Cramer getting all wound up. Makes for a good show and a very bad advise. I haven't watched him in a long long time though. CNBC is for clowns.
    1 Jun 2013, 06:06 AM Reply Like
  • mp0125
    , contributor
    Comments (16) | Send Message
     
    What is wrong with this thinking? If interest rates move up, holders of bonds will dump them. This money will then have to flow into the stock market. If this is true, the market will take an initial hit and then be fed by all the new money coming in.
    1 Jun 2013, 06:50 AM Reply Like
  • TruffelPig
    , contributor
    Comments (4091) | Send Message
     
    In anticipation of this people are rotating actually into high beta. Just have a look at $XONE yesterday. The dump dividend stocks to buy high beta, not bonds.
    1 Jun 2013, 07:36 AM Reply Like
  • a7lewis
    , contributor
    Comments (22) | Send Message
     
    I'm very much long on holding dividend stocks, but the prices of some of the more inflated examples still have a ways to go before becoming reasonably priced. I expect more volatility next week.
    1 Jun 2013, 09:43 AM Reply Like
  • RossAldridgeLasVegas
    , contributor
    Comments (4) | Send Message
     
    Our Fund has been following Jim Cramer and the Mad Money sound effects for 7 years. One consistent thesis of being invested in a diverse sector of stocks is sound but let us let history teach refresh our ticker screen. A world wide broad market sell off will not prevent the profits performing an evaporation performance from your portfolio. The market has been built up by the corporations side way manipulations. These corporate manipulations made sound economical policy as long as the "quantitative easing" was in place. This federal policy did away with the pain for the last three years. We anticipate the easy money will go the way of the Mad Money. We will look for the reserved corporate cash to fund over one billion in cooperate stock buy backs at a bargain basement price, again.
    1 Jun 2013, 12:33 PM Reply Like
  • mironsa
    , contributor
    Comments (14) | Send Message
     
    If, as stated above, an MLP can be held in place of a bond, why would I divest myself of a bond paying 4% and on which there is no tax paid, for a bond paying 2% and on which I have to pay tax? As I stated in a previous comment, unless the distributions decrease in dollar amount to where the % of return is near the 10 year note, or the company appears to be coming undone, I would never sell an MLP. The concept is very simple and too many commenters make it complicated. Or, am I missing something!
    1 Jun 2013, 12:35 PM Reply Like
  • jojokah
    , contributor
    Comments (16) | Send Message
     
    I think that Cramer is right in some way. Job numbers will be key next week to gauge how strong the recovery is.

     

    One will note that despite the Fed's QE the 10 year has gained 50 bps in a few weeks=>That signals to me that the Fed is losing control of long term interest rates. Rates were low because everyone thought Bernanke would be buying if they now think rates will go up and rates will go up whatever Fed maintains QE or not.

     

    I think that there are also significant risks from short sellers that data disappoints and points to a subdued recovery and that the market keeps going up.

     

    Hence why market trading siideways waiting for more signals.
    1 Jun 2013, 01:29 PM Reply Like
  • Aristiphones
    , contributor
    Comments (1327) | Send Message
     
    everything is to be sold. period. stick with debt in particular treasuries. "vulture investing" if this thing looks like a rout. again i'll be watching oil and natural gas for any hints that the collapse in commodities is now going heading "downtown." technology has busted a move...the first in more than a decade. get out of the way if this is an innovation cycle. we haven't had one since the late 90's. this will drive prices DOWN...perhaps substantially as the "value proposition" is relearned.
    1 Jun 2013, 03:51 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (5354) | Send Message
     
    The best of luck with the treasuries.. I heard that cry all during this rally..
    Most of us have been and are now simply harvesting profits..
    1 Jun 2013, 06:41 PM Reply Like
  • TruffelPig
    , contributor
    Comments (4091) | Send Message
     
    Get out of treasuries while you can and instead invest in dividend or income stock.
    1 Jun 2013, 07:25 PM Reply Like
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