Transcripts For CNBC Mad Money 20141125 : vimarsana.com

CNBC Mad Money November 25, 2014

Growth number for the third quarter. Giving our country the fastest growth backtoback quarterly growth, that we have had in ten years. Thats a monumental turn. And while i typically dont care about these numbers, as you know, on a day when the dow inched three points lower, s p down 3. 2 and the nasdaq advanced 0. 7 , this gdp number is so encouraging that i actually think its worth to take a few moments out to discuss it. First, when youve had a run like the one we have had lately, it better be backed by something. This isnt a fedinspired anymore, sure, these stocks are hanging in, but they are not generating the performance they once did. In fact, theyve been left in the dust by the rest of the markets despite their terrific yields relative to treasuries. This market is now backed by the full faith and credit of higher profits and better growth than we thought. It is spurred on by the Consumer Spending more money. Something that our countrys gdp, which is 70 consumer driven totally affirms its driven by a sense of security, wealth, and improvement thats making people more confident. That confidence results in more homes being built, more byes being started, and by people getting hired. All aboard now, some would take issue with my statement this isnt a fedfuelled rally, but let me ask you, if the Federal Reserve isnt buying bonds now, how can we lay this one off on them . The recognition of the self sustaining nature of this particular stock market move changes one of the most important equations that weve been dealing with in the market for many years. For the longest time, even the bulls held once we got some actual economic strength going, the rally, of course, would have to fizzle. Thats because the fed would begin to raise rates and higher rates would create too much competition for stock dollars, while also slowing down the economy and causing earnings shortfalls. Whats amazing is that both longs and shorts, people who were bulls and bears, believe this. We heard many a bull say that as long as rates remain low, they want to buy stocks, particularly ones with really good yields, because they cant get the return they need from bonds, but once the fed ends its Bond Buying Program because the economy overheats, well, then they are going to sell, sell, sell how many times do we have to deal with that, right . Then theyll go buy bonds with the money. We had many a bear talking about how rates must go higher. You may not have known this at the time, but many of these people were doing what i call talking their books, meaning they tended to be both short the bond market and the stock market so they needed rates higher and stocks lower to meet their performance benchmarks, to get paid. They call for a bear market in order to make big money. They havent gotten it. Both of these camps were so fedcentric that every time we heard the fed say it would buy up its Bond Buying Program, they went nuts. The scaredy cats, theyd blow out of their stocks at extremely low prices and the stall wart shorts would stoke our fears and then feast off them. Thats why ive said for years dont listen to these fed talkers. Now, what am i talking about with greed . Im talking about two kinds of greed. One is the kind that comes from being rich already and not wanting your own wealth to base by cheap money. Thats real. And theres the greed where Fund Managers betting against the market wanted the help of the fed that would betightening before it should, thereby, creating chaos in the economy. Alas, the motivation doesnt matter, the impact was the same. If you thought things were Getting Better in the economy, then you had to sell. Thats right, for ages the conventional wisdom said bad was good, worse the economy, better the stock market would be. Or to put it another way, the stronger the economy is, the worse the stock market will be. Ill concede, ill concede, that was an adequate prop to the market for years, and im not dismissing it at least historically, but this most recent advance, the one that started earlier this year, is not predicated on the bad is good and good is bad cliche, no, not at all. Its powered by higher profits without an increase in inflation that would make the fed tighten. It is true normally you would expect higher Interest Rates as a matter of course. That isnt happening for three good reasons. One is, the world away from us, dire straits. Little wage inflation, and little commodity inflation. We have Interest Rates around the world ridiculously low, including spain and italy that are lower than ours, even as the countries were on the verge of default a couple years ago. Those rates are keeping a ceiling on our rates. We do have higher employment, but not higher wages and theres still plenty of people looking for work. As for commodity inflation, oil hit a fouryear low just today. The point is this 3. 9 gdp number comes at a time when things are so weak overseas, that we, we, are the big beneficiary. Worldwide beneficiary of money being thrown at us, which brings me to the crux of the story. Ive been investing in the stock market since 1979. The best parts of whatever rallies we have come on when we get just the kind of 5 00 semiration in earnings that this gdp number would imply. Makes sense. Theres funds all over the world. The big money always wants to go where the economies are strongest, not weakest. The u. S. With its relative strength is going to get more foreign money in to buy stocks, not less. Okay, so how does it play out on a daily basis in the small unit combat that we see every day in the stock market . Lets use the example of apple, which happened to at one point reach a 700 billion market cap today. [ applause ] all right, thats a huge amount, of course, but you know me, for ages i have said to own apple, not sell it or trade it, but to own it, well, 700 billion, so far so good. Heres why. Despite its amazing run, its up 47 year to date, apple only sells at 15 times next years earnings estimates. Remember, thats how we do apples to apples, price earning multiples 15. Right now the average stock sells at 18 times earnings. You have to ask yourself, how is that possible . Doesnt apple, with its superior growth characteristics, new products ahead, and ample opportunity to buy back stock deserve the trade as high as the average stock . I mean, is it mediocre . No isnt it odd that it trades at a discount to the average s p 500 security . I think the answer is obvious, the answer is yes. Say you have trillions overseas, you want to be in our country because money is drawn to the strongest countries with the best growth and a currency thats most likely to appreciate. Thats the United States. You want to own big capitalization stocks that are inexpensive that you can get in and out of. That means youre going to buy a stock like apple. Thats pretty much how the Global Investment process works. Of course, it also works in a larger way, a foreign investor can buy the entire s p 500, knowing it has superior growth characteristics to the market in their own country. Remember, the United States is now a magnet for the worlds wealth and were going to keep pulling that money in as long as our economy stays strong and their economies keep faltering. Like i like to say, their weakness is our strength buy, buy, buy let me give you the bottom line. Before you think, wow, were now way too high given that good news is bad news, because now the fed will tighten, remember that the fed isnt the deciding point anymore. Many people may say it is. Those people its growth. Its profits, and, yes, we have them in spades. The other guys dont. Sometimes that is all you need to know to justify where stocks have been and where they are headed. Lets go to brian in california. Brian. Caller big Hidden Valley lake booyah, jim, to you and your wonderful father. Thank you. Caller jim, a lot of big news recently for colony financial. Theyve made a lot of headway with their purchase of Kobalt Capital for 1. 6 billion and their merger agreement with colony capital, which includes three to fiveyear Employment Contracts for tom bar rack and his upper management team. Where do you see this stock headed in the future . Typically, colony financial, i would not go for it, but i have known mr. Barrack for a long time, and i think the way i used to feel with mr. Farrell at anali, i think mr. Barrack is bankable and i approve you buying this and i like the 6 yield. Hes a real deal. Know him long enough to say that. Austin in california, austin. Caller jim, happy thanksgiving. Thank you, same. Zblg thanks for having me on. I would like to know your feelings on utx and would like to know if anybody knows why the ceo stepped down yesterday. Thats a great question, very facetious this morning, some people thought i was a crab on squawk on the street because i kept saying, listen, if technologies feels they dont need to tell us anything, i guess thats the new way to do it. It is a terrible way to do it, i dont like it, but heres what im hearing and they can come on the show and tell me otherwise, i am hearing this new fella thats come in doesnt like the current configuration and thats why the stock was up so much. Im with him, its been a terrible underperformer, time for better performance. If thats what happened, im all in favor. United technologies, listen to me, you guys are real guys and you have a real board. You know what shame is . Its what you should be feeling. Molly in florida, please, molly. Caller hi, jim. Molly. Caller calling from melbourne, florida. Fantastic, near my friend, man, well have to go down to Spanish House and do some surfing. Caller absolutely. All right. Caller i have a Small Holding in nike, couple hundred shares, its up 23 . Of course, they Just Announced that 17 dividend increase, and im wondering if i should start trimming. Nope, nope, i want you to hold it. By the way, when you say Small Holding, lets understand each other, thats a huge amount of capital, 200 shares of nike, 97, huge amount to you and me, i applaud you for being in a great stock and want you to hold on to it. No fed, no problem. Thats not the deciding point anymore. Others say it is. Listen to me, you know, been managing money since 79, maybe i know something. Its growth and its profits, which we have, and thats all we need to justify where stocks could most likely go. Whats on mad tonight . Another day, another alltime high. Then, whats better than booze, burgers, and ski ball . How about making money off all three . Im digging into dave and busters to see if this mecca of games and grub can be your ticket to profits. Plus, Natural Organic food player haines saless chal. Will the stock help you gobble up gains . Ill ask the ceo. Stick with cramer. Dont miss a second of mad money. Follow jimcramer on twitter. Have a question . Tweet cramer madtweets. Send jim an email to madmoney cnbc. Com, or give us a call at 1800743cnbc. Miss something . Head to madmoney. Cnbc. Com. Its more than the driver. Its more than the car. For lotus f1 team, the Competitive Edge is the cloud. Powered by microsoft dynamics, azure, and office 365, the team can gain Real Time Insights and instantly share information around the globe. When every millisecond counts, staying competitive begins with the cloud. This is the microsoft cloud. From San Francisco to silicon valley, Boston Private Bank works with all kinds of people who are innovating, building, contributing individuals, business owners, private partnerships, nonprofits, families planning their financial futures. People like you. If you want the individual attention and expertise your financial needs deserve, this is your time. This is your private bank. We really appreciate you out there, man. Booyah to my kids, they are in Elementary School learning so much from you. Booyah, mr. Cramer. I know you hear this all the time, jim, but thank you, thank you, so much. This has been my best year by far and away in the market. I want to thank you, you know, for looking out for the regular guys out there. Great to hear your voice and know that youre there for us. From our family to yours, happy thanksgiving, cramerica. As this market continues to slowly power higher, even with occasional small dips like the one we had today, theres something thats been really confounding the chart watchers, and thats what exactly the cbo volatility index, the vix, aka the fear gauge, is doing right here. So tonight were going off the charts to take a closer look at what they might be saying with the help of mark sebastian, the founder of optionpit. Com, as well as being our resident vix expert on mad money, hes been nailing this vix nine ways to sunday. Heres the issue, even though the volatility index is at historically low levels right now, trading at 12 and change, okay, the reality is that in the last few weeks, whatever market volatility there was has completely vanished. In fact, sebastian points out while the s p 500 is just a few points off alltime highs today, the vix, bizarrely, is more than two points higher than where it was the last time the s p was making new highs. Thats an anomaly. Remember, when the markets climbing, we want the vix at low levels, signaling stocks could soon be taking a turn to the worse, which is why we talk about it. Back in the summer, june and july, pretty darn frequently, the vix was trading at 10. 5, and if it was a 10. 5 right now, sebastian says hed be completely comfortable with this rally, no worries, but its not. The vix, which is a really pretty good proxy for the level of fear in the market is trading two points higher than that, so the question is, why . Why do traders feel less comfortable than when we were rallying this summer . Why is there more fear right now . Sebastian thinks the answer is simple, the u. S. Equity markets have a ton of noise around them right now. Remember what the volatility index actually represents, its the cost of ensuring a portfolio via s p futures options. Well, there are actually other, more specialized vix indexes you may not know about. And they are going crazy. Take a look at the evz, which measures the volatility of options on the Exchange Rate between the euro and the u. S. Dollar. Look at this. How about the ovz, which measures the volatility of options on the u. S. Oil etf, both of which closed at new highs for the year today, even as the s p 500 was making, you know, moving around near an alltime high. This is incredible. These are huge spikes. Check out those charts of the two volatility indexes and heres the thing, either of these two indexes which measure the euro versus the dollar and the spiking volatility in the price of oil are making people a lot a bit more afraid here. Sebastian believes they are actually a sign that the big picture volatility index is going lower into the end of the year, not higher, which suggests the stock market, therefore, has more room to run. I dont know, let me give you his reasoning. Simple, its about Interest Rates. Right now theres speculation the Federal Reserve might raise rates in the middle of next year. Sebastian says that just isnt going to happen. His charts say no. And when more people realize it wont happen, then the market will rally again, just a main street of time before the stock market figures out Interest Rates. He has reasons, i thought they were sound when i went over them. U. S. Economy is reaching full employment and theres a real risk of inflation, so lets start with inflation. Why is the evz, the vix for the euro versus the dollar exploding upwards . Is it because the u. S. Dollar has been tanking and fearings alltime lows against the euro . No, its just the opposite. The dollar is near multiyear highs against the euro, many other currencies. Theres another way to measure inflation. If we can see if Commodity Prices are rising, but look at the crash in the price of west texas interimmediate cat crude, fouryear low. Look at the incredibly low price of corn futures right here. A hugely important staple crop. Or how about soybean futures . They are both multiyear lows. In fact, besides meatrelated prices, almost all are at lows. Inflation simply isnt an issue right now. But youre worried about employment, employments been strong. How about the employment side of the picture . I want to show you another chart here. Yes, its true the Unemployment Rate is back below 6 . Wasnt that the allimportant, key target for the fed . However, we also need to consider the u6 Unemployment Rate, which also includes mar jijally attached workers, those who arent looking for work, but still want jobs, as well as people looking for fulltime work but have had to settle for a parttime job. This chart measures the top line Unemployment Rate versus the u6 measure and as you can see here, the spread is enormous. While top line unemployment is 5. 8 , historically speaking, a wide spread. In other words, there are a lot of people who are still out of work, who are working parttime, but they want to be fulltimers. Why does it matter . Even as job growth is improving, this stubborn u6 unemployment means theres still a ton of slack in the labor market and its going to have a crushing effect on personal Income Growth net of inflation, a statistic the fed has been watching like a hawk. In other words, what the fed really cares about is wage inflation, not so much the employment number. Wage inflation is totally stagnant. This chart says it will continue to be stagnant. Thats bad news for most americans, but good news for the stock market, because it means the fed is much less likely to raise rates any time soon. Keeps the fed checked. Thats why he thinks its unlikely the fed will raise rates in 2015 and certainly wont happen in the first or second quarter. No wonder the yield is down 2. 3 . Meanwhile, the yield on twoyear treasury is 2. 5 . Believe me, if fed were to raise rates, we wouldnt be sitting next to historical lows, which brings me back to the volatility index. Perhaps its because

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