Sound The Trumpet : Cramer: Is Street Preparing for the Worst?

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“Cramer: Is Street Preparing for the Worst?”
by CNBC
August 14th, 2014

Pros such as Jim Cramer often look to the market for insights on broad sentiment. And certain things happened on Wednesday that suggest trouble is lurking.

The view may not be consistent with Cramer's personal outlook. "This isn't what I think should be happening," Cramer said. "My world view is somewhat at odds (with developments)." Nonetheless, Cramer doesn't think any investor can make money in the market without first understanding what he calls the "new view."

And according to the "new view," the Street thinks the economy is going downhill. Here are Cramer's market "tells."

Ed Pritchard | The Image Bank | Getty Images

1. The advance in high growth stocks. Although Cramer conceded that some of the buying may be due to positive research calls, largely he believes it's a vote of no confidence in the economy. "Pros don't go buying high growth stocks like Facebook and Google unless they're convinced that the economy has downshifted. Yelp wouldn't have moved up 8 percent if it weren't for the new slow growth thesis that has just taken hold."

In other words, if pros fear growth will be hard to find, they become more willing to pay high multiples for stocks that are most likely to grow.

And Cramer added, the advance in Celgene, Regeneron, Biogen Idec and Gilead also reflect the view. "When pros think the economy is cooling, they buy these stocks because they have little economic sensitivity."

2. Little patience for retail. Cramer said the decline in Macy's reflects this phenomenon in the market, too. When the economy cools, people typically retrench. And although Macy's missed expectations, "It actually didn't report anything at all that negative. It's simply that expectations were too high."

Yet, investors were unwilling to forgive Macy's. "For me it illustrates the new mindset," Cramer said.

3. Price drop in food commodities: The decline in the price of grains, hogs, cattle, poultry and more also says to Cramer that pros don't believe demand matches supply.

Of all the declines in commodities, the price drop in oil probably speaks loudest to the Street. "These declines are very visible," Cramer said. When the global economy percolates, oil advances. Although Cramer thinks the domestic energy renaissance may be, at least partly responsible for lower oil prices, the Street sees it as an economic issue.

4. Bonds. Because rates and price very inversely, the stubbornly low rates are viewed on the Street as a sign that demand for bonds remains strong. And historically that happens when the global economy is challenged. Cramer, however, isn't so sure. He believes that Treasury yield is low because bond investors find U.S. bonds appealing as compared to other nations. Nonetheless, higher rates typically accompany economic growth, and rates are anything but higher.

All told, Cramer thinks these developments betray a changing sentiment on Wall Street. A strong demand for bonds, a drop in the price of oil, little patience for retail and and advance in high growth stocks suggest the prevailing wisdom has changed dramatically. "Pros who had thought the economy was accelerating are now looking for slower growth and lower inflation."

You don't have to agree. But if you want to make money in the market, you must, "respect the market, no matter how wild, crazy or stupid it may be," said Cramer.

Looking for His glorious appearing! Titus 2:13