Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday, November 20.
"Today's sell-off gives Fed Chief Jay Powell the cover he needs to raise interest rates one more time next month and then put the next few hikes on hold," said Cramer. He gave eight reasons for the Fed to pause the rate hikes:
- FAANG stocks: The top stocks - FAANG - are collapsing and have lost more than $1T in market value. "What does all of this have to do with the Fed? Simple: it's called the wealth effect. When your investments lose value, people feel poorer, and that causes them to spend less money."
- Oil: Oil prices are at their lowest level since October 2017 as investors are worried about a global slowdown. "That's called deflation. It's an extraordinary boon to the consumer. It puts the Fed's biggest worry in check. I have to believe the price at the pump is going to come down and come down hard over the next few weeks," said Cramer.
- Retail: The slowdown in retail is signaling a pause in consumer spending. All retails stocks cannot be wrong. "If the Fed ignores them, that would be insanely rash. Remember, the retailers took down a lot of inventory ahead of the tariffs on China. What happens if they can't sell it all? Lower consumer prices, that's what."
- Housing: The slowdown is housing is "awful" in Cramer's opinion as mortgage rate have gone high and single-family housing starts had their slowest pace of growth in four months and the worst year-over-year decline since 2015. "Housing declines can cause an awful lot of layoffs as the homebuilders realize that the market isn't coming back any time soon," he added.
- Hotels: The hotels are struggling too. In the last eight years, the collective hotels' revenues per room fell last month.
- Tariffs: The trade war is putting pressure on stocks. As tariffs rise to 25% by the end of the year, there will be lot of stress in the US economy.
- Data: A lot of data are showing negative signs. American Electric Power (NYSE:AEP) on their conference call said that oil and gas dominated Q3 growth. "Well, what happens to a commodity that just lost 24% of its value in the last month?" asked Cramer.
- Autos: The auto demand has slowed down massively. "The average car on the road in America is now 11.2 years old. Cars last longer than they used to, so the demand for new ones continues to slow. Even used car values fell by 1% last month," said Cramer.
Given the employment trends, one rate hike in December would not slow down the US economy. "Next year, when we annualize the tax cuts, when the tariffs rise to 25%, when the retail and housing layoffs begin in earnest, and if Powell keeps raising rates, well, we're not going to want to own a lot of stocks. The worse things get, the more likely it is that the Fed will do the right thing, though. That's the one silver lining today," concluded Cramer.
Off the charts
Cramer went to the charts with the help of technician Carley Garner to get a reading on the oil prices. "You can't understand this breakdown in the stock market unless you recognize that we're seeing some spillover from the carnage in the oil futures. You have tons of money managers with staggering losses in, say, the oil futures. If their investors want out or they just need to raise capital to meet the broker's margin calls, they need to sell something, and that often is stocks," said Cramer.
WTI crude hit one-year low and US crude prices have fallen 30% from a four-year high. Garner believes that much of the weakness can be blamed on short-sighted fund managers who are selling equity to pay for these commodity market margin calls. The weakness is far from over as the end of the year tends to be tough on oil prices which peak in October and trade lower through January end.
The Commitments of Traders report says that money managers, small speculators and commercial hedgers still have many long positions in West Texas crude futures. "Large speculators were net long roughly 230,000 contracts as of this latest reading. That's down dramatically from 730,000 at the peak — the largest net long position, it's not down enough to make Garner believe we're ready to bottom," said Cramer.
Based on historical swings, oil has a floor of support at $51 and another at $42. "The oil futures, amazingly, are still not oversold, meaning they haven't actually gone down so far so fast that they're due for a bounce," said Cramer. While Garner doesn't think oil could head to the $40s, she warned that it's important for the price to hold the floor of support at $51.
Oil is not out of the woods yet.
The tech sector was considered immune to interest rate hikes and the tariffs and yet somehow they are in free fall. What led to the tech decline? Cramer thinks that the theory of "data centers peaked" started it all. The data centers are at the heart of cloud computing and the reaction by investors to FAANG earnings says it all.
"The idea that the data centers are a spent force has been deadly to the whole sector. It's the new narrative that refuses to go away regardless of all the evidence to the contrary, and there's a lot of it," said Cramer.
While this led to the tech sector dragging down, the "buy on dips" theory failed to work after IBM (NYSE:IBM) acquired Red Hat (NYSE:RHT) for a hefty price and Apple (NASDAQ:AAPL) stopped reporting iPhone unit sales. This spread to the entire tech sector and buy on dips have turned to the last opportunity to sell before the market heads lower.
"We've entered a world where good news is irrelevant and bad news is all that matters. I don't see how tech can give you a sustainable rebound without some hard evidence that the data center's OK or that its weakness is purely overcapacity and not a slowdown in demand from the cloud. Until then? You've got to wait until the knives are done falling," concluded Cramer.
Behind the virtual assistant
Cramer interviewed cofounder and CEO Dag Kittlaus of Viv Labs, the man behind inventing Apple's Siri virtual assistant.
Kittlaus said that voice-enabled assistants are the future of digital technology. Speaking is seven times faster than typing and the assistants are 90% accurate today and this will only improve with time.
After Apple acquired Siri in 2010, "on the positive side, it's a lot faster, the speech recognition's gotten a lot better, but they dropped the ball on a couple things like opening it up to third parties," said Kittlaus.
While most consumers use voice enabled technologies for basic stuff, the potential is huge. "Imagine 2007. The iPhone launches. It's got about nine apps on it, but this is like Weather and Stocks. Nine months later, they open the App Store. Now, you've got millions and millions of apps that change the world. So we want to do that with AI and with assistants," he added.
Viv Labs has launched a new platform for third-party companies to create capabilities for Samsung's virtual assistant Bixby. "The tool lets third parties come in in almost like a Wikipedia-like way. So, anyone can add new things to Bixby. Users can enable it," he added. "Eventually, you've got thousands of things that these things can do for you. It becomes one of the most important parts of your day," said Kittlaus.
Viewer calls taken by Cramer
Boeing (NYSE:BA): Cramer wants to hear their conference call before recommending a buy as one in four of their planes still go to China.
Spectrum Brands (NYSE:SPB): Their last quarter was not good. Don't buy.
Chesapeake Energy (NYSE:CHK): It's not the right place to be.
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