Fed's Macro Approach To The Economy Is Incorrect – Cramer's Mad Money (10/11/18)

Stocks discussed on the in-depth session of Jim Cramer’s Mad Money TV Program, Thursday, October 11.

The selloff continued on Thursday, and it might not be done. There are two approaches to see the economy – top-bottom approach or macro approach, and the bottom-top approach or micro approach. The Fed is following the macro approach with the belief that Trump’s tax cuts, deregulation and near-full employment have made the economy red-hot and they have to use interest rates to cool it down. “Based on that, our new Fed chief, Jerome Powell, has concluded that business is so strong that without a problem it can handle a series of lockstep rate hikes well into 2019,” said Cramer.

Taking the bottom-up approach by talking to CEOs, Cramer clearly sees the issues brewing, and the economy might not be as strong as the numbers show.

Auto industry players like PPG Industries (NYSE:PPG) and Trinseo (NYSE:TSE) suggest that there is a slowdown in sales. “Housing is either pausing or down for the count. We know this because it’s what Lennar (NYSE:LEN), the largest homebuilder in America, told us. Lennar has its pulse on every market,” Cramer noted.

Micron Technology (NASDAQ:MU) has suggested softness in semiconductors, and packaging materials are also seeing a dip. When package materials are either stagnant or dropping in price, it indicates a slowdown in shipping, an important barometer for the economy. Rising oil and steel prices are squeezing margins as they raise input costs across industries.

“When you consider all of these industries that have been slowing, you start to see some patterns,” said Cramer. The Fed is looking at what happened last month, and Cramer is worried about what comes next.

Trump called the Fed crazy for raising rates. “I agree with President Trump that the Fed needs to tighten less aggressively, even as he probably shouldn’t have said those nasty things in public because he’s making it harder, not easier, for Jerome Powell to give him what he wants,” Cramer opined. “I don’t think it’s gone crazy at all. I think it’s gone lazy. It’s a shame,” he concluded.

Tech stocks

The selloff is led by the tech stocks. As interest rates and inflation rise, the future value of growth stocks is less, and hence, investors got out of the tech stocks due to panic. Money managers have also sold tech stocks to lock in gains for the year. More so, the tech stocks are bundled in ETFs, and hence, a lot of them are going down on pin action.

Despite the selloff, there are good stocks in the rubble, and Cramer gave his list of tech and related stocks to look out for once the selloff is over. These are Autodesk (NASDAQ:ADSK), IDEXX Laboratories (NASDAQ:IDXX), Amazon (NASDAQ:AMZN), Take-Two Interactive Software (NASDAQ:TTWO), Intuitive Surgical (NASDAQ:ISRG), Expedia (NASDAQ:EXPD) and Intuit (NASDAQ:INTU).

“You can start buying one of these tomorrow. Pick at it, alright? Don’t buy all at once. Why these? Because they all just reported great quarters or have been on a roll, yet their stocks are getting crushed as if they’re doing poorly. We aren’t guessing with these. We know the last data points are positive, so that is the best place to go,” Cramer said.

Don’t rush to buy tech stocks, as many of these companies have a few weeks to report, which means investors can take their time to buy them.

Selloff Strategies

Cramer continued with the segment of strategies on how to play the selloff by taking calls from users.

The caller’s portfolio was down by 20%, but they need money for down payment on a house. Cramer suggested waiting for the market to bounce and then taking some money out. If the monetary requirement was long term, he suggested letting it ride for 12 months or less.

The second caller was looking for a bottom to reinvest. Cramer suggested being patient and buying in small increments. The timing can never be correct with just one trade.

The last caller looked for safe consumer staple stocks. Cramer said he likes Procter & Gamble (NYSE:PG) and Clorox (NYSE:CLX), but their dividends are not big enough to protect them. He also suggested investing in drug stocks.

CEO interview – International Flavors & Fragrances (NYSE:IFF)

IFF had a good last quarter, and it did an equity offering to refinance debt and mergers. Cramer thinks this is the kind of stock one should buy in a volatile environment. He interviewed CEO Andreas Fibig to find out what lies ahead.

Fibig said the company’s customer base has increased worldwide and is the largest, totaling over 30,000, thanks to recent acquisitions. IFF has huge opportunities to grow and cross-sell its growing product portfolio.

The company has become a leader and expert when it comes to local and regional flavors and fragrances, which helps it deliver good performance. It is expanding in fast-growing segments like cosmetics as well. Fibig also thinks commodity cost rise is a mixed bag, as while oil and steel are increasing, others like vanilla are decreasing in price.

Viewer calls taken by Cramer

Newell Brands (NYSE:NWL): It yields 5% but the company is not doing well, and hence, Cramer said he cannot recommend it.

Tesla (NASDAQ:TSLA) and NIO Inc. (NYSE:NIO): Cramer is against owning Chinese stocks. Regarding Tesla, it’s a cult stock, so it becomes an investor’s choice.

Applied Materials (NASDAQ:AMAT): The stock is going down, as there is an inventory push-out and bigger lead times.

TE Connectivity (NYSE:TEL): It trades at 14 times earnings and is a good electronic component stock. Buy it.

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