Market News

April 11, 2014  Fri 9:06 AM CT

We've got to go to Athens and Beijing to figure out what's going on in New York because, if one thing is for certain, you won't find many answers for what happened in yesterday's trading by going down Wall Street.

Frankly, it was one of the most mystifying days we have had in ages. In fact, in a vacuum we should be up, not down.

Why? Because the two biggest pieces of U.S. news yesterday were positive. The first: How about the lowest unemployment claims in ages? That's right, jobless claims went down by 32,000 to 300,000. Did you know that's the lowest since 2007? That's right, we are finally back to where we were before the Great Recession.

You would think that the market would cheer an economy that's generating jobs, especially because it sure hasn't been able to do so with any alacrity since those dark days began. I think there are people who thought we'd never get back to this level. That's how dismal and negative the collective mindset has gotten.

But cheering an economy and cheering up a stock market are two very different things. So when we finally get what we wish for, people sell stocks.

Normally I would get that. The economy is more robust, so therefore interest rates went higher, and competition knocked stocks down. Right? That has been the pattern I have seen for, say, 30 years? But not yesterday. No, in a total perversion, bonds were screaming and rates were plummeting. Best hiring since the Great Recession, and interest rates a falling off a cliff? I would have said that's impossible if I hadn't seen it with my own eyes.

The second piece of good news: How about the smallest March federal budget deficit in 14 years? Lots of hiring, lots of tax receipts, and a cutback in spending created that minor miracle. The budget deficit is the only thing that has caused more handwringing among critics of Washington than the lack of new jobs.

Even if it is just one month, you have to admit that the best March in 14 years is a good thing, not a bad thing. Another reason to cheer for stocks? Not yesterday--was another reason to jeer.

Now you might ask, did something happen in corporate America that could have triggered this decline? Let's figure out yesterday's news. Did any company report of note? Actually, two did. The first was Rite Aid, which reported its best quarter in memory. Everything went well for the No. 3 drugstore, something that couldn't really happen if things were out of whack.

Then again, Bed Bath & Beyond reported a tepid quarter. As much as I like to shop there for my beach stuff--I dropped a ton of money at the chain's Harman division, chiefly on talcum powder and razor blades--I don't think that Bed Bath is a difference maker.

So there was no corporate news to justify the decline. No broader, macro news to explain the decline.

When we draw blanks on a domestic lack of tranquility, we know we have to go somewhere for answers, and I am going overseas to nail this lunacy down. First stop? Beijing. We've had a parade of truly horrible numbers coming out of China, but we got a Grand Poobah on Wednesday night: a 6.6 percent drop in exports and an 11.3 percent decline in imports. I gulped when I read those. logoTo me, those numbers allow you to craft a thesis that says China has fallen off the world's grid. China is an export nation that isn't exporting. It's an importer of raw goods that has stopped importing.

Both of these events are blatantly deflationary. Keep that term in mind for a second, because a deflationary environment isn't necessarily good for equities, as companies do need to be able to raise prices everywhere so they can increase their earnings. And given that we are in earnings season, we don't want to start hearing that China is not doing any business. Our companies need China to import our coal and our cosmetics. But if China isn't exporting, where is the money going to come from?

Let's keep the quizzical travelogue going, this time to Athens. Here's a country that was the butt of many jokes just a couple of years ago, a bankrupt nation that actually put the Western world through two bailouts. A profligate group of tax dodgers who had no game whatsoever.

Then on Wednesday night, the Greek government sold about $4 billion in five-year bonds with a yield of 4.75 percent. At one time that was obscenely low in this country. But Greece? A deadbeat nation pays only 4.75 percent? That's ridiculous. You get no upside, very little return and a ton of risk.

Who needs that? If I am going to get no upside, I would buy bonds from the United States, the country with the shrinking deficit that will mean less issuance, not more, the one where I have a natural buyer, the Federal Reserve, right alongside me if I change my mind.

And lo and behold, that's just what happened. On a day when we had the best employment news in seven years, interest rates cascaded. That's just not supposed to happen, and it wouldn't have if it weren't for economic uncertainty overseas and a lack of quality bonds to own because, believe me, Greece is the highest return you are going to get in sovereign debt.

Yes, the search for yield is so palpable that the only stocks that have been able to withstand yesterday's selling onslaught almost all have decent yields. How powerful a draw is yield? Consider two stocks, Chipotle Mexican Grill and McDonald's. One is a serial outperformer, a company that put up 9 percent comparable-store sales, the key metric for restaurants. The other is a serial disappointer that other restaurant chains are actually making fun of.

Yep, Chipotle the company can do no wrong, and McDonald's the company can do no right. But the stocks? Chipotle, with no yield, was down $19. McDonald's, with a 3.26 percent yield, was up a buck! Talk about a demonstration of the power of dividends.

Of course, which companies pay the fewest dividends or have the worst prospect of dividends? How about development-stage biotechs and software-as-service cloud-based technology stocks? And which companies have issued the most stock or have the highest ratio of insider selling? How about biotechs and cloudy tech?

Which stocks were hit the worst yesterday? Biotech and cloud-based companies, of course.

Now, remember earlier this week, I told you about the forced selling of hedge funds? Well, guess what? That returned yesterday too, in a huge way. The selling of the non-yielders for the yielders made the market feel like quicksand, and these fund managers are simply diving right into it.

And that's how you get this kind of debacle, out of U.S. stocks into U.S. bonds, all in one sickening vacuum the whole darned day.

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