Don't Follow Bonds Blindly - Cramer's Mad Money (6/20/17)

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Includes: AMZN, IBM, PBI, TELL, WIX
by: SA Editor Mohit Manghnani

Summary

"IBM is re-inventing itself" - CEO Ginni Rometty.

Decimal theory signals that Dow is due for a pullback.

The energy group is under pressure right now.

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, June 20.

Bonds are boring compared to stocks but they always signal something. "Why should we trust bonds more than our own brains? A couple of reasons. First, bonds represent trillions of dollars of activity, much more money than the stock market. You ignore trillions of dollars of decision making and fire power at your own peril. Second, they are correct about the direction of the stock market," said Cramer.

On Tuesday, bonds rallied and interest rates fell signaling a slowdown. Cramer said that just because this happened, stocks are not doomed but they suggest that the demand is weak. He gave his reasons as to why bonds rallied:

  • Oil has fallen to $43.
  • Amazon (NASDAQ:AMZN) announced Prime Wardrobe Service where you can try clothes at home and send back items that don't fit. Cramer added that Amazon is wrecking the price structure of everything. It is moving inflation to a point where rates do not need to be raised.
  • The deflationary push is coming from the inability of Congress to pass bills on infrastructure and tax cuts.

These three deflationary factors are pushing stocks down. Bonds cannot be ignored. Tomorrow, bonds could take us in another direction, or they could be more positive about growth. "They do play it pretty close to the vest, you know. So I say don't ignore the bond market, but don't let it be your master. Common sense can always be a factor," concluded Cramer.

CEO interview - IBM (NYSE:IBM)

Cramer interviewed chairman, President and CEO Ginni Rometty to hear her take on the future of the company and her visit to the White House.

She gave her views on Warren Buffett selling shares due to competition in tech, "We've traded publicly for 100 years out there. And the trick to being a company in tech, which is a viciously competitive environment, that's absolutely right, is you've got to keep reinventing. And what IBM is for is for someone who values high value as a company. He has just revalued the company differently." She added that Buffett still owns 50M shares in IBM. She is at peace with Buffett's decision as the company yields $4 and has a strong balance sheet with lots of cash. "I let every investor speak for themselves, and I'm very appreciative of all our investors," she added.

Her meeting in Washington was about upgrading the government's IT infrastructure and also about educating the next generation of IT professionals. They have already started on apprenticeships and are considering a six-year high school curriculum.

She commented on Watson - their AI program. "We are the ones that woke up the AI world here again. Their employees call it cognitive programming. There's a reason we call it cognitive. It's about augmenting what you and I do so we can do what we're supposed to, our best. And then that's the IBM that takes that technology and the know-how about how the world works and puts that together and actually changes business. We are the champion for business," said Rometty.

Their AI is different from what consumers use. "Consumer AI in your home, it's typically speech detects to a search. That's fine. That's great. But we deal in the enterprise world, so this is training Watson. Watson is trained in industries: What does underwriting do? What does a tax preparer do? What does a doctor do? What does a customer service agent do? What does a repair person do? And it helps them be better, and, in fact, helps them do their job," she added.

More than 1B people will interact with Watson by the end of 2017. It will play an important role in reforming the healthcare system. "We will be able to address, diagnose and treat 80% of what causes 80% of the cancer in the world. If that's not motivating, I don't know what is," said Rometty.

She talked about block chain and described it as exchange of technology in a trusted environment. Bitcoin is an example of block chain. IBM is also deploying secured technology for food safety, cargo shipping and other applications.

Off the charts

Cramer went to technical analysis with the help of technician Larry Williams who explained decennial market cycle. According to this theory, stocks move in 10-year patterns. They move higher in years ending three, seven and ten and go lower in years ending five, eight and nine.

Based on this theory, the charts of the Dow show that it is due for a pullback in July before having a bigger decline through November. This theory tells the timing of the decline and not the size, and the decline is not an indication of a bear market or recession.

CEO interview - Wix.com (NASDAQ:WIX)

The stock of web-hosting provider Wix is up 58% in 2017. Their last quarter was good with 50% revenue growth. Cramer interviewed co-founder and CEO Avishai Abrahami to find out what lies ahead.

Abrahami admitted that there is lots of competition in the space but added that they are the leaders by a huge margin due to superior technology and Super Bowl advertisements. "Today there is a lot of smaller platforms, mostly in the United States. Squarespace would be one, Weebly would be another. But I think that the technology gap between us and them is so huge," he said.

Many businesses are not on the web yet and as a result they have been adding more than 2M customers a month. They also offer search engine services and more than 65% of the users who complete their recommendations end up on the first page of the web search.

"It's actually true, you can come to Wix and build a website for free. And then when you start to use more business fixtures – you want to have e-commerce, you want to have ways for people to book your services – this is where we charge," said Abrahami.

Viewer calls taken by Cramer

Tellurian (NASDAQ:TELL): Anything energy is under pressure right now. Stay away.

Pitney Bowes (NYSE:PBI): They are doing good things lately but he'd like to interview the CEO to know more before opining.

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Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.