Como se combate o populismo? "Com eleições", responde Fukuyama

[Ulisses Pereira]

"Celebrate Weakness"

By James J. Cramer
RealMoney.com Columnist
5/23/2005 2:06 PM EDT

""I guess, with this sluggish economy, we can pretty much forget about the stock market going up."

I have gotten that subtle inquiry a half dozen times in the last few days, as the consensus builds that we are no longer in strong growth mode, and instead are "limping along" at a 2-3% pace. Everyone who flags the flagging outlook does so with a definitive bias that this kind of economy can't provide a decent backdrop for equities.

To this I like to say -- no, shout -- "Wrong!" Most of the great gains in the S&P 500, the favorite benchmark, have occurred precisely in this kind of environment. This kind of economy, one of the slow burn, the gradual increase, benefits far more companies than a rapid-growth economy does.

In fact, this is why I have been cheering "bad news"; I wanted the pastiche of the economy to look, well, just like it is now.

Think about the makeup of the S&P 500. The two dominant groups, the two that represent the so-called "breadth of the market" aren't industrial at all. They are companies with stocks that ramp in this environment: financials and health care. Technology, the next largest group, has shown little correlation with strong growth.

Only when you get down to the tag-end groups, the minerals, mining, wood, paper and chemical stocks, do you get companies that truly need strong growth to propel their stocks forward.

Why is that, you ask?

Simple; the stock market loves growth, but not the growth of the economy; it loves the growth of earnings. The atmosphere that produces the largest percentage of stocks with growth in earnings is exactly this one.

If the economy is too strong, the Fed will slam on the brakes, giving the financials a rude jar to earnings. Too weak, and the only companies that can generate real upside are hypergrowth companies and drug companies, too small a cohort to create a wide-ranging rally.


Too strong, and we flock to gold and silver and cash, as the short-rates will go sky high. Too weak, and we can go buy long bonds betting that they will ramp ever higher in price.

Too strong, and cash is king. Too weak, and bonds are king. In the middle, where we are, stocks are the best game in town.

In this environment, Pepsi (PEP:NYSE - commentary - research), Intel (INTC:Nasdaq - commentary - research), Zimmer (ZMH:NYSE - commentary - research) and Procter & Gamble (PG:NYSE - commentary - research) all can go up at once.

In this environment, you can have McDonald's (MCD:NYSE - commentary - research) rally and have Microsoft (MSFT:Nasdaq - commentary - research) advance. You can see Google (GOOG:Nasdaq - commentary - research) go up, but you can also expect Bank of America (BAC:NYSE - commentary - research) to go higher. Citigroup (C:NYSE - commentary - research) and Countrywide Financial (CFC:NYSE - commentary - research) print money at these levels.

So we lose Phelps Dodge (PD:NYSE - commentary - research). So we say goodbye to Cleveland Cliffs (CLF:NYSE - commentary - research) -- big deal!

That's why I celebrate the weakness. That's why I have to disabuse people of the notion of the weaker environment. This atmosphere is precisely what most of the stocks you and I follow need.

This environment is why we ultimately will go still higher. "

(in www.realmoney.com)