Market News

March 14, 2014  Fri 8:11 AM CT

This market is taking a page out of the Cold War. It's Russia and China against the United States, except the battle's not taking place in Korea or South Vietnam. It's taking place on the stock exchanges of the three countries and, right now, the Russians and the Chinese are winning when it comes to the hearts and minds of U.S. investors.

Put simply, we are in a vacuum in this country. We are past the big employment number. We are ahead of any big earnings numbers to speak of. The only two we had of note yesterday were Krispy Kreme and Williams-Sonoma. Both were positive, with the latter being spectacular.

If anyone cared about WSM yesterday, we would be much higher, not much lower, because its last quarter was so superb that you know some of the strength has to be because the consumer is still spending on her home. When you see that kind of spending at a mall-based store, it heartens you. In fact, you feel that the investment spending on the home must be getting better, not weaker.

But it doesn't mean a thing. Nope, what matters is Russia getting more intransigent about Ukraine and the Chinese economy faltering still further.

The other night I said we needed three eyes to keep track of this market. Until yesterday, I think the third eye was blind--people didn't see this collapse in commodities. It was obscured because our country seemed to be doing so well.

Remember it was only six days ago that we learned how well our economy was doing, as represented by newfound job growth? We got a snapshot of weekly unemployment yesterday that was consistent with that growth.

But neither bonds nor stocks are paying any attention to our hiring or the retail sales of fatty donuts and expensive pots and pans. The bonds are looking at the chaos and fear in Russia and the slow collapse of China.

We know that this market goes to extremes rather quickly. A few days ago, Russia looked as if it was going to go to war with Ukraine. Then the Russian stock market got hammered, and we heard that President Vladimir Putin stopped looking at his army and started looking at his portfolio--and those of his oligarch comrades--and decided to turn the other cheek.

The Russian market settled down and, sure enough, Ukraine becomes all fluid again. We keep getting undercurrents that the Russians are playing the game that the Germans played with Poland right before the war, demanding a corridor to the Black Sea, and the West doesn't want to appease Putin as it appeased Hitler more than 70 years ago.

I will admit that the parallels are a little eerie. In the 1930s, Hitler was demanding a corridor through Poland to Danzig, a port city on the Baltic Sea with a huge number of German citizens, even though it was situated within Poland. Russia wants a corridor to Crimea right through Ukraine, again because Crimea is largely Russian and the Russians want the Sevastopol port because they are cut off from the Russian navy right now. logoFor Europeans this is just too reminiscent of when their fathers and grandfathers were willing to appease Germany. They don't want to repeat history with Putin, another dictator whom they abhor.

You could argue that it is really their problem, and their markets have been taking it on the chin. But when U.S. Secretary of State John Kerry says there could be serious steps Monday if a Crimean secession vote occurs this Sunday and, at the same time, Russia is again conducting military maneuvers in the area, you have everything you need to provoke selling on Wall Street: a deadline, some armies, and commitments by Western leaders to take action.

Who wants to be long or own stocks through that weekend? Better to sell now and come back Monday if nothing of note happens. So let's attribute half the selloff to our Russian cold-warrior enemies. But that means the other half falls right into the bailiwick of China.

We keep hearing that the Chinese government is reining in reckless banks. We also know that the Chinese government let the corporate bond of a crummy company fail, which is a shot across the bow that it's no longer going to bail out investors in companies that don't deserve to live. When you overlay copper's decline (remember, that's the thermometer for China and the attention of your third eye, if you have one), then you can make a case that China is worsening by the day.

It's not reassuring that only a handful of companies were able to rally yesterday, and they tended to be in the froth cohort again. Clean-battery stocks and dirty government-sponsored-organization stocks like Fannie Mae can't go up when the blue chips rally. Just like in the bad old days of Cold War enemies Russia, China, and the United States, it's mighty hard for truly terrific and lucrative international stocks to coexistence on the new-high list with the dregs of the stock market.

I know that all of this seems like a ridiculous overreaction, but let's play it out. Does anyone really expect the war of words over Ukraine to turn into World War III between Russia and Germany, this time with us sending our troops to fight alongside the Germans? We can talk tough, but I can't imagine the 82nd Airborne heading to Kiev any time soon.

However, we do have a deadline, and if the deadline is breached, just as it was with Syria, something has to occur. We don't know what that something is going to be, but it's a super reason to take profits after there's been such a run.

As far as China goes, it can take us down on darned near every negative data point because we are uncertain at all times about our recovery, and because the hedge funds that lord over short-term trading have a sign on their desks that reads: "Weak China data equals sell." Until that sign reads: "Weak China data means nothing," you are going to get this pattern of copper being down and corporate bonds being allowed to default and China's lending standards tightening.

Given that all of our large-cap stocks trade down when the S&P 500 futures are getting hammered, you know some bargains are being created--and not just in the utility field where the safe, higher-yielding, all-domestic stocks shined. You know I favor Con Ed, Dominion Resources, Southern, and American Electric Power if you want to go there.

But you can't capitalize on those bargains yet because of the threatened anti-appeasement actions by the West. And unless Putin says something that indicates that he's no Hitler when it comes to annexation, today will likely bring lower prices still.

If you are a hair-trigger trader, you have a nirvana short-selling moment with the only thing that can hurt you being Putin suddenly becoming the West's big buddy and standing down his military.

My take is that there's no hurry. Yesterday was Day 1 of the combined Russo-Chinese offensive against our markets. On Day 2, we can begin to sort things out and choose companies that have nothing to do with foreign entanglements, and even do some investing on all those stocks we talk about buying on pullbacks.

That should be the point of maximum pain, barring a Chinese collapse over the weekend and Putin going into Kiev to complete his 1939-like maneuver.

Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.
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