One of my favorite shows to watch is Jim Cramer’s Mad Money on CNBC. I don’t always agree with him, nor does he get it right all the time, but he is hugely entertaining. Yesterday’s show did get me thinking.
Cramer laid out two strategies for investors.
One, investors can join the sell-off of expensive high climbing mainly tech stocks. This strategy is definitely the right one if you are risk-averse in my opinion. However, investors may be leaving a lot of money on the table.
The second one is to hold and on as the Federal Reserve tries to keep inflation rates from rising. This strategy to me is riskier, but I was a financial advisor during the tech bust and mortgage bust. The Fed is committed to keeping control of the markets, but the GameStop situation should tell investors that the markets can get out of control fast.
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Reading between the lines, I think Cramer is suggesting investors do the first one. Sell off any high growth stocks before it is too late.
Why, do I think that because Cramer said this later in the show, “After today’s late afternoon rebound, it’s not too late to sell the more egregiously expensive stocks if you want to.” He most likely knows something more than we do.
Later in the show, he went further, “If you want to hold on to the growth stocks … you have to be prepared to take some pain, just like in late 2015 and early 2016.” Cramer then said it was the last great time to buy these types of stocks.
Powell told lawmakers that inflation remains “soft,” the labor market faces ongoing challenges, and that the central bank was committed to its current monetary policy.
Both the Federal Reserve chair Jerome Powell and his predecessor Janet Yellen are very Dovish on interest rates and don’t seem to care about the massive amount of government spending which has historically triggered inflation.
As a matter of fact, it seems like Yellen is stated in her Senate confirmation that she believes the Federal Reserve and the Biden administration should take advantage of interest rates being low (near zero) and thus spend even more on stimulus.
In other words, spend more now because interest rates are low, which will keep inflation down?
Maybe I am just getting old, but I think the market will ultimately dictate interest rates. More importantly, the 10 Year continues to rise and everyone on Wallstreet is screaming “inflation.” So what we have now is a volatile market in which the Fed is “playing chicken” with the markets on rising interest rates.
Todd Lowenstein, The Private Bank at Union Bank, said “There is this tug of war around inflation. Inflation could be transitory but we need to keep an eye on the bond market due to massive federal spending.”
I will admit, I am not a fan of the Fed and am a classical economist. The more we mess with the markets and interest rates, the more they are likely to get out of control.
Bottom line, I think Cramer’s first strategy is right. If you are in growth tech stocks, get out now. Wait for the market to drop, settle and then get back in.