Friday, May 15, 2009
(Cont'd from above)...

Jim (cont'd):   

If you didn't know any better, you'd probably think that the big investors make up their world view based on all those data points that you hear about on TV or read on the web... the ones that come out on a daily basis... the unemployment claims, the producer and consumer price data... oil inventories on Wednesday, natural gas on Thursday... maybe retail sales...

That's not the way I do it...

Look, I care about national employment data... of course... I care about it, because... well, everybody else does... so I can't ignore it. I don't sneer at housing starts that come out next week. I'll certainly look them over... Consumer spending numbers? Sure, I'll given them their due...

But they are not enough... and they're not enough for you either...

See, they don't offer me any of the clues that I need to make up my mind about what my world view should be... See, all these big - what are known as - macroeconomic numbers... big economic aggregate numbers... they're what everyone looks at. So they can't give you an edge...

You need an edge to be able to make money in this market, because everybody's already familiar with them... So what edge do they provide? So what edge do I get? How do I do it?...

I like to build my world view from the bottom up... what's known as "micro analysis"... meaning that, by looking at what individual companies are saying, and piecing all of that information together...

I listen to conference calls to hear about what they say about the different parts of the economy...

So, remember last night, when I said, how do I know whether to buy GOOG or YHOO, right now, which I both think are buys?... I simply pieced together the jigsaw puzzle about what TWX, what DIS, what CBS and what NWS had to say about the internet, and ad spend, on their conference calls... And, when I looked at the ultimate tableau, it said there's a turn in the web... the advertisers are coming back. And, if they're coming back, then you probably want to buy pure plays...

See, the calls wouldn't say that... You're not going to hear (CBS CEO) Les Moonves say, "Go buy Yahoo or Google"... I mean (NWS CEO) Rupert Murdoch is not going to say, "Go buy Google"... That isn't the way it works... But you knew to buy Yahoo and Google, if you were on those calls...

Which brings me and you to next week's Game Plan... You have to have a Game Plan going from Friday into Monday...

Next week, I get two of the most important clues to put together what I need, for what I regard as an "electoral map" of the economy... the world view that I rely on to make tons of decisions on this show...

How can any piece of information be that important?...

Think of it like this... When the media tries to figure out what will happen in a presidential election, they don't look at all the states and tally them... No. They look at what's happening in the "swing states" to make their prediction... to give their world view...

I mean, when we try to figure out what's going on in Cramerica... the stock nation... we need to worry about the pin action off the swing states too... And the two swing states I care about... Florida and California.

Yeah, the two most important states when it comes to figuring out the U.S. economy... They are our economic swing states, because they're where so much consumer spending takes place, and because they have so many people on the move at all times... so they're constantly in flux... they're not static.

The growth in Florida and California spurred the biggest amount of residential and commercial construction in the country... They were the epicenters of the housing boom... and the housing bust! And their growth also led to the most important growth in retail...

So yes... you can indeed say... as goes Florida and California, so goes Cramerica... and that's why next week is so important...

There are two companies, each with a national footprint... each with gigantic exposure to our swing states... Florida and California. On Monday and Tuesday, the two biggest tells... the two most important pieces of the national economic puzzle will come out...

Commerce Department reports, maybe? On industrial production?... Labor Department reports on hourly wages?...

No... They don't help me make up my mind at all...

I'm talking about Lowe's (LOW) and Home Depot (HD*)... That's right, on Monday morning, Lowe's reports earnings and, on Tuesday morning, so does Home Depot...

Given that the biggest issue is determining whether we're going deeper into a recession, or coming out of a one... is whether or not housing has bottomed, as articulated by our swing states, Florida and California...

So we need to listen to these two companies' conference calls... we need to hang on their every word... because both companies expanded way too heavily in these two swing states... both companies have been extremely cautious about the economy and its prospects... and, so far, neither one has seen much of anything positive coming from the two Cramerica swing states.

For me, in terms of my world view, the next leg of this market's rally, if there's going to be one, depends on a housing bottom... particularly in these swing states... of Florida and California... We need to see whether the consumer is spending or hoarding... the money from the huge wave of refinancings that have occurred, courtesy of Ben Bernanke's endless attempts to keep mortgage rates, and refinance rates, low...

We need to see whether people are optimistic about the world, or are they mired in negativity...

Where do you go? I know where I go... If you have excess money to fix up your house, because you think it's finally worth doing it...

Where do you go if you want to renovate? If you want to construct?... If you want to buy products that lead to spending?... Yep. Lowe's and Home Depot... which, by the way, I own for ActionAlertsPlus.com, my charitable trust, so I'm deeply focused on Home Depot...

And that's why your Game Plan, if you want to make informed decisions, like I did at my $500 million hedge fund... if you want to try to figure out what to do in the near term... is come up with an economic world view by focusing on, not one, but both of these companies' earnings statements and conference calls... and the questions they're asked on those call. Or else you won't know whether Cramerica is slinking back into a severe, severe recession... which means we're going to lose a quick 1,000 DOW points... and we'll see a lot more days like today's awful session... or if we're just muddling through, no worse than last month...

That's the so-called "stabilization trade"... buy, buy, buy!... which would allow us to hang out, right here, basing for the next move up...

Or, and I know this isn't going to happen, so I just have to put it out there... but it's not... things are actually getting better... which means you should scan what's down, because it will be time to do some buying...

I think things are stabilizing, and that makes me excited when the market's down... but it doesn't make me excited when the market's roaring...



Here's the bottom line...

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The Bottom Line!:     What's my economic world view? Why don't you ask me on Monday and Tuesday, after I've read the earnings releases, seen all the different statements that they make, listened to the conference calls of Lowe's (LOW) and Home Depot (HD*)... and you had better do the same, if you want to be able to invest like a pro.

[verbatim recap]

[end of segment]

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