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Jim Cramer (1:40)
Hey, I'm Kramer. Welcome to a special San Francisco edition of Bad Money. Welcome to Cramerica. Other people make friends. I'm just trying to help you make some money. My job is not just entertain, but to educate, to teach. So call me at 1-800-743- CNBC. Tweet me imKramer. Today got real ugly, but at least we finally have something that can make the Federal Reserve itchy to cut interest rates sooner rather than later. Bank Loans gone Bad Nothing motivates the Fed to move faster than credit losses, because they're a definitive sign that the economy is going south. There are early warnings that it's time to ease, and the banking system has now provided us with enough questionable credits in one week that the Fed can move swiftly to slash rates without all that much worry about inflation. Of course, when you have something as grave as credit losses at banks, the market doesn't react well. It's a sign that until the Fed uses perhaps aggressively, banks will make it harder to borrow money. And layoffs could be on the horizon, which is ultimately why The Dow tumbled 301 points today. S&P dropped 0.63%. Nasdaq sank 0.47% even though it was up in early morning. Still, the Fed's in A constant tug of war between cutting rates to spur economic growth and leaving rates alone to prevent a resurgence of inflation. With the regional banks getting crushed by bad loans, it's much, much easier for the Fed to go with the former analysis. Lower interest rates do many things. They can make housing more affordable, cranking up an industry that, you know, it's probably in the worst recession in ages. They can make it easier for businesses to expand. And they make dividend stocks more attractive in comparison to the bond market because treasury yields have suddenly fallen to lower levels than anyone was expecting. Boy, did that happen today. Many of the consumer packaged goods stocks, for example, are starting to put in some serious bottoms high like Campbell's, maybe General mills. They're following PepsiCo, which had its yield rise to 4% on stock to price depreciation, not a dividend boost not that long ago, and then saw a stock rocket more than 10 points on a better than expected quarter. Here's some predictions. I think Kimberly Clark could be bottoming. Procter and Gamble already started the process, but much, much more immediately. Lower rates make it easier for borrowers not to default. That's what's so welcome about the bad loans that plague these regional banks. Echoing the cockroach theory that Jamie Dimon talked about on the JP Morgan conference call this week in reference to subprime auto lender Tricolor that went under an auto parts company, First Brands, both of which filed for bankruptcy. As Jamie put it, when you see one cockroach, there are probably more. Sure enough, a couple of cockroaches surfaced almost immediately. The two major bad loans at Zions bank and a soured loan at Western Alliance Bancorp might be on the hook. For now, it's possible there's foul play involved in that multi billion dollar problem of First Brands. Doesn't matter though. A bad loan is a bad loan is a bad loan. And that's good for the stock market because these bad loans won't hurt profits of any other than the banks. The pain will be contained, I think. I also believe the banks are pretty prudent these days. Much more prudent than they used to be, at least when it comes to money lending. Because there's a perception that the Trump administration's employees might hire bank examiners who will go easier in the industry. Look, the president's more pro business than the previous guy. But when I was in Washington running a federal panel at the Federal Reserve bank about what small medium sized banks need to do to succeed, last week the three execs I interviewed all Pleaded for lower rates. The regional bank index, down more than 6% today, makes for a pretty compelling argument to cut them. I believe the bankers. To me, these credit woes just made the case clearer. Now, what do the big institutional money managers glom on to? When we get bank credit issues, they tend not to distinguish between the good and the bad and the ugly of the financial industry. Just go back to the last banking crisis, the miniature one in the spring of 2023, when many banks had balance sheet stress because they owned a lot of low interest bonds At a time when interest rates had a very sudden receipt rise that generated surprising outflows that caused four banks to fail, often hindered by uninsured depositors who wanted their money out fast. All bank stocks went down during that period. That was also the beginning of the run in what became known as the Magnificent Seven. Investors, traumatized by the prospects of credit cards, flooded companies with such deep pockets they never need to borrow money. They fled to big tech companies that, like nation states, were sovereign and didn't need to raise money to expand. Can that happen again? Hard to say. As someone who spent the last four days interviewing tech executives, I can tell you that we spend more time talking about whether tech's in a bubble than we do about what the future of tech actually looks like. There's been so much money spent on artificial intelligence by these seven companies that some assume that they'll finally end up being cash trapped. I met very few people who think like I do, which is that we're embarking on the fourth industrial revolution and the spend is a necessity. That controversy could hinder the migration from stressed areas to growth zones. Two years ago, those companies didn't have anything big to spend their money on. Now they do. One thing I did hear over and over and over again is that artificial intelligence is causing companies to spend less on people, more on tech. Once that tech investment is made, these companies will be able to get more out of their workforces, allowing them to grow faster and more efficiently. Of course, there's a whole other group of people who say that if growth is possible with fewer people, why not fire a huge chunk of the workforce and make more money out of the static revenues? Earnings per share can go higher on the same sales when you're more efficient and use artificial intelligence. That said, all this is in flux. We don't know how many cockroaches are out there. The rewards from artificial intelligence aren't nearly as clear as the bulls would have you believe, because it's often too unreliable to be used in important decisions. You know that and I know that. We catch GPTs and mistakes all the time. However, if the ban loans really tend to be made by bad bankers or there's fraud, the Fed cutting interest rates would be simply helping the good banks. That would boost the real economy. What is the real economy, you might ask? Remember, in Mad Money, we have a tripartite stock market. Right now, there's the stocks that are related to the Data center, that's 1. The stocks that are owned by speculators, that's 2. And those that are a part of the actual economy, both service and industrial. The bottom line, those real economy stocks will be the winners in the rate cut scenario that I see playing out. Those stocks have been in the doghouse long enough. Only bad regional loans can spring them. And the credit cavalry's right on time, the speculative ones. Please join the monster sellers we saw today and ring the darn register on at least part of your holdings. Enough money's been made in that cohort already. You don't want to give it back. Let's take calls. Let's go to Ryan in Massachusetts. Ryan. Hey, Jim. How are you doing, my friend? I couldn't be better. How about you, Ryan? I'm doing great. Just wanted to say, Jim, I'm 21, just got into investing, and I love your sage advice. My question is about align Technology. I want you to go. I know it's a low price earnings multiple, but I just think there are a lot of forces against it. Let's move on from that one. Mark in California. Mark. Booyah, Jim. Booyah, Mark. Welcome to the Bay Area. Oh, I love it out here. Thank you so much for having me. What's happening? I got a question about isrg. They did really well beginning of this year. I know tariffs are hitting them. A couple competitors. What do you think?