Kudlow & Cramer Deliver Signs of a Market Downturn

Permabulls accept the end of a bull run at either two points: never or long after the market sours. However, these eternal optimists can help us spot a market downturn long before they accept reality because they offer a signal of fear. When a permabull asserts everything is excellent “but, the Fed needs to be more aggressive,” the permabull is truly saying, “I want you to believe everything is excellent, but excellence now depends on some good ol' fashioned welfare.”

Or, as a normal person would say, “We need help because the economy’s growth is no longer sustainable.” Thus, the bull’s “but” can help an insightful investor move to the sidelines or make bearish investments (e.g., puts, short selling) in uncertain times.

We all have two famous permabulls at our disposal: Larry Kudlow & Jim Cramer. Larry describes himself as a free market capitalist who thinks the US economy only grows. He has a poor record of accepting recessions, and caused a lot of people to lose money at the end of the dotcom bubble.

Although Cramer (host of Mad Money and founder of TheStreet.com) does switch from bull to bear, I consider him a permabull because he is always overwhelmingly exposed to stocks and in bear markets he prefers defensive stocks (e.g., Proctor & Gamble (PG), Pepsi (PEP), etc.) rather than raising huge cash positions. As a result, Cramer is almost always praying for the market to rise. When either of these two CNBC personalities shows you their “but,” it’s time to think about getting out of the market.

For example, Thursday night I was on the treadmill digging my runner’s high when during Kudlow & Co. Larry was glossing the economy like a high school senior in the National Cheerleading Championships. As usual, he only discussed bullish evidence and annoyingly talked over the guests who attempted to mention the credit crisis, inflation, the housing debacle, or waning consumer spending. However, suffering through Larry’s entire show was worth it because he showed me his “but”! When a self-declared king of free market capitalism hypocritically begs for an outside entity (e.g., the Fed) to lay its hands all over the economy, we have ourselves a genuine bull’s “but” signal that the market is in trouble.

Larry’s former partner Cramer has also spent the last week opining that the Fed needs to be more aggressive, despite his unwillingness to call a recession. SmartGuyDMoney also noticed that on days when the market is down, Mad Money places a red down arrow in the corner of the screen. However, no green up arrow is used on days when the market rises. Is Cramer preparing our little home gaming minds for his switch from permabull to bear?

A bull’s “but” is not a pure sell signal. However, when combined with other signals such as the ones discussed in my previous article about a sucker’s rally, we can begin to build confidence that cash, puts, and short selling weak companies is best while analysts and permabulls beg you to buy or hold so they will have someone to whom they can pass their bag of what comes out of a real bull’s butt.

Disclosure: SmartGuyDH likes Jim Cramer and appeared on the first Mad Money episode with a live audience in 2005.

Comments

[Hysteria]

Great commentary... Cramer was more like pleading with the Fed to be more aggressive! It is hillarious to watch these guys refuse to acknowledge the trouble we are headed for.

[insight13]

Amen I say unto you. Kudlow and his wobble heads such as Steve Moore and Laffer...always nodding..sometimes before Larry has even
made his point...Larry butts in whenever someone tries to make a point. Give Joe Battaglia credit for even showing up...he makes more
sense than most on the show...

[rmgreenwald]

Good points. Kudlow tends to be endlessly annoying, with his "I can yell over any rational counter-point you try to make." For someone who preaches undying allegence to free-markets, etc. it's ironic that he cries out for Fed help instead of allowing the investment and commercial banks to suffer the free-market consequences of their actions.

I confess that I do enjoy Cramer, and see him as a financial entertainer and educator. He has the training and experience to understand and explain market conditions/trends in common-sense terms, but you just can't take every sound-bite (or sound-board gimmick) at face value without additional context and research.

[omooc]

RMGreenwald puts it well - when the chips are down, these free-marketers are the first ones to demand -- not ask, but demand -- Fed to bail them out. Even more interestingly, the Fed complies. What a show -- or, two shows.

[d.r.goodie]

I appreciate this article and enjoyed all the comments and opinions. I find all the personalities mentioned educational and entertaining. I hear more differing opinions on Kudlow's show than any other - and don't mind his enthusiasm one bit. It is just another opinon to consider while I form my own. Wish I knew which one of us really knows.

[dNova]

Disclosure: I like Cramer too.

Every time I bet against him I make money.

He's a "sure thing."

[d.r.goodie]

Sure wish I had bought FCX and RIG when I first heard him recommend them (among others). He has helped many people make money and has helped me avoid losing money quite often. The success of your betting against him must mean you are the one with the crystal ball. Dang.

[raylo]

The Fed will cut rates if they feel that the economy worsens and that's a given, no need for anyone to ask for a bail out. Time will tell if the bull run is over or not. No need for trash talk.

[emily x]

Good piece. Kudlow is *insufferable* -- I congratulate you for having made it thru his show!! I think my record is 30 minutes before my screaming at the TV makes the neighbors open their doors. He wastes the time of some very good guests, that's for sure.

Cramer is indeed "educational and entertaining" -- The main thing I've learned watching his show is not to follow his advice. I lost quite a few shekels trying that at home when I first started investing. But it was all good -- it got me to pay more attention and make my own decisions, then I made it back and then some. A very valuable lesson. He's still fun to watch. But I actually listen to people like Michael Metz and Jim Rogers.

[rodcore]

I could not agree with your take on Kudlow and Cramer more. Particularly Kudlow. What is so dangerous about Kudlow is that ordinary retail investors and tuning in and taking him seriously. Yesterday on a promo for his show he announced "Bush says no recession" as though this point held any validity. Quite frankly I think CNBC should take Kudlow off the air. He would gladly have you throw your money down the toilet chasing his idealism than make a prudent investment.

[GKM]

Good article. I especially appreciate the part about Kudlow's "creed". I feel so sorry for the guy that he doesn't even realize he's the anti-capitalist: begging for handouts/bailouts from wherever they can be had.

The fact that these two individuals are out there preaching "buy the dips" is not only disgraceful, but will ultimately catch a bunch of sods loaded for bull when the market tanks early next year. I hope that Kramer's body guard knows what he's gotten himself into.

[raylo]

Well, only time will tell if it happens. It's really a 50/50 call now if the market tanks or not. Of course all you short sellers wish it your way.....
So don't count anyone out or you'll be eating your own mouthful of @#$% !!

[raylo]

GKM, u r full of shit !!

[SmartGuyStocks.com]

Looks like the Bull's But works ... and we have further to go. Even Bush admitted there's a problem. Front cover, WSJ.

[GKM]

Cramer finally got the message. Kudlow may not ever get it. If he does, then I'll know to cover my shorts.