Buy, Buy, Bad Bear

At the bottom, at the end of a great bear market, certain psychological and historical tests must be met. There must be investigations galore, as various branches of the government, both federal and state, take turns indicting and incriminating analysts, managers, brokers, and the media for losing all of that money. There must be a massive decline in interest in the stock market: People stop checking what they are worth; they know it goes down every day, so why bother? Close to the bottom, people stop watching all those business cable channels; they are just gruesome reminders of nest eggs destroyed and savings lost. And as the nadir approaches, there must be bankruptcies galore, many of them caused by the greed and shenanigans of managers, accountants, and investment bankers, all of whom deny any wrongdoing. Finally, at rock bottom, there has to be an overwhelming sense that the moment you buy a stock, you lose money, so why not leave the market altogether and keep the money in some place safe, like the First National Bank of Sealy Posturepedic?

That’s how I know we hit bottom a couple of weeks ago. That’s when we finally met every single criterion, from the negative ratings for the business shows to the shortage of defense lawyers for stock-market prosecutions. Therefore, it should come as no shock that the market’s remarkable tear in the third week of May, when the averages broke out of a huge slump, will mark the beginning of the end of the bear market that has reigned over Wall Street for more than two years.

No doubt the past two years have seen trillions of dollars in capital destruction. Every area of safety and capital growth, every sector, from tech to drugs, from industrials to utilities to transports, has seen its share of decimation. We have gone from a country that was crazed about its stock market to one where we seek to indict anyone who made big money during the go-go years.

So, is it any wonder that most people didn’t pay attention when things started getting better a few weeks ago? Nor should you expect anyone to start calling this a new bull market anytime soon. That won’t happen, because the generals leading this market – Sears, Wal-Mart, Caterpillar, General Motors, Philip Morris, Wells Fargo, United Technologies, and United HealthCare – aren’t the kind of stocks that excite people. Most people are still clinging to those names of yesteryear: Sun Micro, EMC, Oracle, and, alas, Worldcom. But those companies aren’t coming back anytime soon, and they sure won’t be leading the charge to any new highs.

No, the gains are now in health care, ex-drugs (think HMOs), automakers, restaurants, retailers, and defense and defensive stocks, like Coke, Pepsi, and Clorox. These kinds of stocks are boring, they attract no attention, and no one cares. But look around, people are making money again, and if you aren’t making any, it’s because you too are stuck in the names of the nineties, and those guys simply stink out loud, as the leaders of the last bull market always do when a new bull market springs up and surprises people.

You may not want to believe in this market. You may see your mutual fund still down double digits and think that there’s no bull market. But that’s because you should have fired that manager. He’s still playing the old game with the same old names. You may not want to believe it because your 401(k) has been cut by two thirds and you now invest in T-bills. But you haven’t been studying the “New Highs” list in the business section, which is about ten times the size it was last year at this time, and you may still be stuck dreaming of the nasdaq, which, even after its recent 8 percent–plus week, is nowhere near where it used to be.

Take it from me, though. As someone who watches money managers and studies their stock picks with the obsession of a former competitor, I can tell you that some of these guys are getting it right. Take David Rocker, the legendary short-seller, who came on Kudlow & Cramer, my CNBC show, the other night and said that the time to short most tech was over and there are bargains to be had. Take Doug Kass, the notorious hedge-fund bear from Boca, who is loading up on no less than America Online, a stock he shorted from the 80s on down to its current lows.

Or Chuck Clough, once the most important oracle at Merrill Lynch until he turned so bearish that he disappeared from sight, drowned out by a sea of bulls. He was dead right, of course, just premature. Now he sees winning stocks in health care, home builders, and hospitals, and acknowledges that at long last, the bull is back – it’s just not back where people expected it to come back.

Clough, Rocker, and Kass, three towering stock-market intellects who dodged the bear or profited from it all the way down. And now all three acknowledge that things have gotten too cheap to bet against the market. Remarkable. That, too, is what should happen at the bottom.So, keep moaning that no one is making money in the market. Keep believing that the bears still run wild on Wall Street. My money’s on the bulls. For the first time in two years, they’re running, albeit in padded feet with nary a twig being snapped or a matador on the scent. It’s time to start running with them. Stop fighting it. The bottom, at last, is at hand.
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James J. Cramer is co-founder of TheStreet. com. At the time of publication, he owned stock in Caterpillar, Philip Morris, Wells Fargo, United Health Care, Pepsi, and Clorox. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions that he takes may change at any time.


Buy, Buy, Bad Bear