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Jim Cramer (1:26)
Hey, I'm Kramer. Welcome to Mad Money. Welcome to Kramer America. I'll be with my friends. I'm trying to save you a little money here. My job, not just to entertain, but on days like day, educate, teach you about how to handle this. So call me 1-800-743-CNC. Tweet me at Jim Cramer. It's a miserable day. Just nasty, drenched in red ink. The Dow plummeting 817 points. S&P plunging 1.61%. Nasdaq tumbling 1.41%. Don't buy. Don't buy. It was hideous. So we got to ask ourselves, how the heck did this happen? We got to dissect the reasons for this decline. Before I give you a message of hope, not despair. I will let everyone else do the despair thing. They do it very well. First, stocks are going down because interest rates keep going higher. Like it or not, the stock market takes its cue from the much larger bond market. Even though most publicly traded companies we deal with don't borrow a lot of money, they don't have floating rate debt either. So who cares about treasury yields, right? Wrong. The economy runs on credit, always has. And the cost of that credit is going higher and that will slow business and hurt earnings. It could hurt you more than the tax breaks will make you happy. Consider that it's what is at stake for you. Right now, we're in a transition mode. We're going from moderately high interest rates to genuinely high interest rates. And here I'm speaking of the long rates that are set by the bond market, not the Fed. Blame the Fed. The Fed is in control. It's the why that spookiness. See, we're discovering that April was a really weak month in this country. As we pass the quarters that are being reported, we get the sense that the economy froze in the country between Liberation Day, when the President announced those super large tariffs, and when he rolled most of them back over the next few weeks. It's not like business did nothing during the interregnum between Liberation Day and the tariff pause. It's more like CEOs spent that whole period frantically switching their supply chains, trying to get out of China as fast as they could. Well, many companies were able to do that. Lots of others were surprisingly much more dependent on the People's Republic of China than even they knew. As I listened to the calls and talked to CEOs, they crow about how instead of importing 100% of their stuff from China, it's now down to 50%. We have a 30% tariff on Chinese imports. 50% is way too much. The reliance on China is shocking. The government may have put a pause on most of the tariffs, but I haven't found a CEO is deeply concerned that they could come right back. Frankly, it's a wonder that any business got done in this country in April at all. Of course, many companies don't need to import anything, so they didn't feel the pinch. But what matters to the market is that CEOs of all stripes recognize that their bottom lines are now hostage to something that's never been the case. Hostage to the White House. Now they hesitate to even talk about it, lest their fears get back to President Trump. And that's how you end up targeted. Like Apple, who was singled out for moving its iPhone production from China as quickly as possible. I thought we wanted that. Turns out it's not enough to move your manufacturer away from China. President wants to hear, or else. Whatever else is, it's that kind of admonition that his business frozen. And it's not just Apple. The President told Wal Mart he doesn't want them raising prices to pass on the cost of tax. Wal Mart. In theory, there's nothing you can do to Wal Mart, but in reality, who knows? It's almost like we have a centrally planned economy, isn't it? One based on pique and anger and maybe a little sarcasm. It's not helping the GDP at all. And regular people have no idea why they're suddenly seeing higher prices pretty much everywhere. Not just the supermarket. The whole exercise is indeed inflationary. So the month of May is the month of everyone, consumers, bosses, CEOs, trying to get used to the new regime of mandates and menace. No wonder it's National Health Month. Mental health. That alone would put upward pressure on bond yields. Anything inflationary sends these yields higher. Just a fact. But when you have inflation and lower business activity, I don't have to tell you that's an unholy situation. Less business should lead to less inflation, but not if you have tariffs raising the price of so many items that you and I use and businesses buy to make things. Now, the second inflationary punji stick is right in front of us tax bill. Now, I don't want to make political commentary, so I'm going to ask sources to chat. GPT quote. Former President Donald Trump has frequently referred to his proposed budget legislation as one big beautiful bill. Hmm, that's true, Chatbot. But chatgpt, did you know that Trump is the current president? Why don't even pay for that service anyway? If you want interest rates to go down, the government has to cut the budget deficit. That means cutting spending and raising taxes. So imagine just for a moment that the bond market is a person. That person would take one look at this budget bill and head for the hills. Because the tax cuts, huge tax cuts, will indeed blow up the deficit. That's right. And you wonder why rates are going up. They're supposed to go up when the government does the opposite of what Mr. Bond Market wants. It's axiomatic, written in granite. Right now it's President Trump versus the bond market. It's a tough opponent. It doesn't succumb to name calling or outrageous postings or threats to be defeated by a handpicked candidate. There is no candidate. And the bond market ain't wrong running for anything. So we have a situation where tariffs are finally kicking in at rates that aren't as high as we feared, but are definitely inflationary. And we have a budget bill that could add 3 to $3.5 trillion in debt. Not subtract add. That would be one thing if the market had taken a beating lately, softening the ground and prepping us for this onslaught. But the market's been fabulous in that sense. You could argue that today was a day of vicious buyers remorse. But let's go back to the initial question. What does any of this have to do with stocks? First and most important, we had a bond auction 20 year paper and it did not go well. Buyers seem fed up. They recognize that there might be a reckoning coming because our government keeps borrowing money like there's no tomorrow. Every once in a while it dawns on bond buyers that they're not being compensated enough for the risk. Given that the United States just can't get its act together. As rates go up though, the optimists among us look at the yield, now more than 5% for the 20 year. And what do they do? They sell stocks to buy what's now a more attractive asset. And compared to your typical dividend stock where the yield is only about 4%, that 5% risk free from Treasuries, Great deal. Remember, you always get your money back when you buy a bond. So as yields go up, bonds become more attractive versus stocks. Meanwhile, the uncertain business environment makes people more risk averse. When you're risk averse, you sell stocks and buy bonds. Okay, all right then. What's the message of hope here? Is there any way out of this? Sure there is. Remember, we're in the thick of it right now. The budget deficit is front and center, hence the reckoning. When we finish the budget negotiations and we get some big beautiful bill, people will start focusing on how the tax cuts should be great for growth. While the bill is very inflationary. That's because it's going to juice the whole economy. The reckoning will be replaced by a new thesis. We're going to grow our way out of the deficit. It doesn't matter if it's right or wrong, just matters. That will replace the grim reckoning gloom and its incessant chatter. Remember, we are the richest country in the world. We can kick the can down the road for decades. For the national debt goes up in our face. It's a fact. When the bond market calms down, and it will, buyers will come out and pick among the stocks of undamaged companies. Look at it this way. There's a heck of a lot of stress right now. Markets frantically trying to factor in higher rates and lower taxes and higher tariffs and higher lower business activity and higher inflation and lower consumer spending. Right now we only feel the negatives. These can be replaced much more easily than it feels right now. Much more easily than it feels. Remember that. And when we do replace them, the bottom line is that this market should come roaring back. Because there are plenty of companies that can deliver excellent earnings in this environment. And their stocks are being clubbed along with everything else. Patience, patience. Better prices are coming. I can promise you that. Prakash, California. Prakash. Yeah. Prakash from California. Congratulations for 20th anniversary of your show.