Jim Cramer has an enormous following. Between his appearances on CNBC, his show Mad Money and TheStreet.com online magazine, he seems to be everywhere and people seem to listen to what he has to say. Having examined a number of his recent calls (on Mad Money), it seems he’s right about as much as he’s wrong. However, he has managed that most magical of guru tricks… consumers of his “information” only seem to remember what he gets right… and they continue to flock to his show and website in droves.
So don’t be surprised if Cramer’s most recent pronouncement (in which he declares the bull has only just begun) resonates with the flock. And, truth be told, he may be right, but we think it prudent to at least consider the alternatives. So let’s do that shall we?
- Cramer asserts that “very negative developments are being resolved positively.” He cites the resolution and turnaround happening in Europe as evidence. Alternative View: Nothing has been resolved… at best the problems in Europe and elsewhere are on pause… and barely that. Just because the fiscal difficulties of Greece and the high unemployment rates across EU member countries are off the front page doesn’t mean the issues have been resolved.
- He says “companies are generating bountiful profits” and it doesn’t much matter if the profits are organic or bolstered by historically low, stimulative interest rates. Alternative View: Really? It doesn’t matter where profits come from as long as they come? Seems there are several people incarcerated for just such thinking.
- “Companies are friendly to shareholders.” Cramer says companies are breaking up, raising dividends and doing giant buybacks all of which drive share prices higher. Alternative View: Companies are returning money to shareholders and engaging in M&A activity because there are fewer and fewer growth opportunities in their core businesses…not a good thing for companies for more than a quarter or two.
- “Jobs are becoming more plentiful.” Cramer cites the recent better than expected employment rolls and the falling unemployment rate as evidence of the improving employment environment. Alternative View: He may be right, but before running off to celebrate, we should make sure the new jobs are decent, full time jobs and that the declining unemployment rate is not primarily the result of a falling workforce participation rate.
- “Inflation remains tame.” Cramer suggests inflation remains low and thus interest rates also remain low, which he says sparks business creation. Alternative View: While the CPI remains contained, anecdotal evidence suggests that the cost of living is definitely rising notwithstanding official stats to the contrary.
To be clear, Jim Cramer might be right regarding the points above. However, it’s also possible that he’s dead wrong. How much of your financial future are you willing to bet to find out?