This sell-off was caused by a computer-driven ‘footrace,’ Jim Cramer says

Sell-off caused by computer-driven 'footrace,' says Jim Cramer

Sell-off caused by computer-driven ‘footrace,’ says Jim Cramer   11 Hours Ago | 01:10

As CNBC’s Jim Cramer watched stocks nosedive in Tuesday’s trading session, one thing became abundantly clear to the longtime market-watcher: it “was all about the rise of the machines.”

The major averages all fell more than 2 percent as a possible slowdown signal in the bond market and lingering trade fears rattled investors. The Dow Jones Industrial Average fell more than 800 points intraday.

Some attributed the dramatic declines to a lack of buyers, but Cramer already knew the culprits: complex algorithmic programs set up by professional money managers to sell when the odds of future market losses increase.

In other words, when an event that often precedes a recession occurs — in Tuesday’s case, short-term interest rates trading above long-term rates in a so-called yield curve inversion — some trading algorithms will automatically begin selling securities because the chances of an economic slowdown just got higher.

Cramer, host of “Mad Money,” drew a comparison with football. Some plays can seem very risky, but when you consider the percentage chances of them going right, there’s no choice but to implement them in the field. These programs make the same kind of calculation.

So, when the two-year and the five-year yield curves inverted on Tuesday, some hedge funds’ programs automatically sold the S&P 500, which tends to fall in times of economic weakness, and others automatically sold shares of the big banks, which suffer when long-term rates are lower, Cramer said.

“Why? Because historically, this situation has produced negative results for the bank stocks and these hedge funds are trying to get out ahead of others who fear those negative results but just don’t know they’re going to fear them. It’s a footrace,” he explained. “This curve, as they call it, overrides whatever you hear about good employment or consumer balance sheets or robust lending. It’s predictive.”

Worse, the charts are signaling more pain ahead: based on Cramer’s analysis, many hedge funds likely sold the S&P 500 when it dipped below its 200-day moving average because, in the past, that move tended to bring more downside.

“Here’s the problem: there are now so many hedge funds using the same algorithm, same programs [that] there simply aren’t enough investors willing to take the other side of the trade. If we all know that stocks go down on certain triggers, then who the heck would want to buy stocks?” Cramer said.

“That’s how you get a day like today, where the market goes into free-fall,” the “Mad Money” host continued. “When the percentages are against you and the algorithms are in charge, … nobody wants to try to be a hero and bet against them.”


Even at $6, Snap’s stock still isn’t a bargain, Cramer warns: ‘It’s an ill-advised decision to buy’

Snap still isn't a bargain, even at $6, says Cramer

Snap still isn’t a bargain, even at $6, says Cramer   6:48 PM ET Fri, 30 Nov 2018 | 00:51

Snap Inc.’s stock price may have fallen to just over $6 a share — down about 70 percent from where the stock started publicly trading — but even this low price shouldn’t fool investors, CNBC’s Jim Cramer said Friday.

“Do not be tempted by Snap’s $6-and-change share price. It’s not a bargain,” he warned. “At more than five times next year’s sales [estimates], you could argue it’s actually fairly expensive. And, of course, there are some alarming long-term trends here.”

For Cramer, host of “Mad Money,” the most worrisome thing about the Snapchat parent is its cash generation. When Snap went public in early 2017 with nearly $1 billion on its balance sheet, that was the last thing investors were worried about, but lately, “Snap’s cash hoard has been slowly dwindling,” he said.

Since the second quarter of 2017, when Snap had $3.24 billion in cash, its cash balance has declined by double digits every quarter, falling to $1.4 billion as of its latest quarterly report.

Worse, the company’s cash from operating activities — what its core business earns, minus some major expenditures — has been shrinking by bigger and bigger amounts. And while some of that money is being invested in growth, most of it is funding the social media company’s day-to-day operations, Cramer said.

“As we’ve watched the company struggle and the stock go into freefall, I’ve started to wonder if Snap has enough money,” he said. “Just keeping the lights on at Snapchat is costing these guys a fortune. That’s not good.”

While Snap currently has no debt, a business that drains cash instead of generating it presents a “huge problem,” the “Mad Money” host continued.

The proximate cause, he explained, is that Snap spends a fortune on the cloud: with hundreds of millions of users uploading and downloading Snapchat content every day, the parent company has to pay for the digital space.

And even though Snap’s management laid out some lofty goals for the year ahead, namely turning a profit and stemming the company’s free cash flow losses, Snapchat’s total number of daily active users is now declining, Cramer warned.

“Snap’s growth is evaporating before our very eyes,” he said.

Add in Snap’s slowing revenue growth — up 44 percent in the latest quarter, down from 72 percent in the year prior and 285 percent at the IPO — and some high-level executive departures, and Snap’s future looks murky to Cramer.

“Until Snap gives us some reason to believe in a turnaround, it’s an ill-advised decision to buy the stock,” he concluded.

Shares of Snap ended Friday’s trading session up 1.72 percent at $6.51, dipping slightly in after-hours trading.


Cramer Remix: Alphabet is FANG’s biggest conundrum

Cramer Remix: Alphabet is FANG's biggest conundrum

Cramer Remix: Alphabet is FANG’s biggest conundrum   12 Hours Ago | 01:03

Stocks will only recover from Monday’s dramatic sell-off if seven key things happen to brighten the outlook for the broader market, CNBC’s Jim Cramer said as the major averages pulled back.

“The thinking behind today’s action is surprisingly simple: money managers are buying the winners and selling the losers,” he said on “Mad Money.” “Unfortunately, there are a heck of a lot more losers than winners, and I want to put that into context because such behavior, frankly, is highly unusual this close to the end of the year.”

One of the things that needs to happen, Cramer said, is the FANG stocks — his acronym for Facebook, Amazon, Netflix and Google, now Alphabet — have to stabilize.

But of all the FANG members, “Alphabet is the biggest conundrum,” he said. Class A shares of the Google and YouTube parent ended Monday trading 2.57 percent lower, at $1,049.36.

“Their stock is pretty inexpensive. They have more than [$]100 billion in cash. They own search. They own online video. They own the self-driving car market, at least for now. I think it’s an outright buy. But no one cares. All this will start mattering at some lower price, though,” he said. “I suspect the bears will come to regret selling it.”

Starbucks CEO talks China: ‘We’re not immune’

Kevin Johnson of Starbucks speaks at the Annual Meeting of Shareholders at McCaw Hall in Seattle, Washington.

Jason Redmond | AFP | Getty Images
Kevin Johnson of Starbucks speaks at the Annual Meeting of Shareholders at McCaw Hall in Seattle, Washington.

While Starbucks can’t shield itself from the outcomes of the U.S.-China trade war, the company can continue to play “the long game” when it comes to China, Starbucks CEO Kevin Johnson told CNBC on Monday.

“We haven’t seen any significant impacts from the geopolitical situation between the U.S. and China, but that said, we’re not immune,” he told Cramer. “But because we really have built Starbucks in China for China, it really is operating as an entity in China that’s relevant to the consumer, to the culture, and we’re playing the long game.”

China has been a focal point for Starbucks as the coffeemaker’s second-largest market after the United States. In August, Starbucks announced a partnership with Alibaba Group, China’s largest technology company, to boost its digital and physical presence in the People’s Republic.

Click here to watch and read more about Johnson’s interview.

Dividends aren’t always safe—look at GE

A man takes a picture of a General Electric (GE) engine during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018.

Aly Song | Reuters
A man takes a picture of a General Electric (GE) engine during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018.

In times of stock market volatility, investors tend to flock to “safe” stocks that offer steady growth and high dividends. But high-yielding securities can come with unexpected risks, Cramer warned Monday as stocks traded lower.

“The risks are enormous if you don’t know the pitfalls,” he told investors. “As much as we love dividends, they’re only worth chasing after if your payout is safe. So if you want some income from your stocks, you need to watch out for red flags.”

The first red flag is when a company has a very high dividend yield, Cramer said. That tends to mean that investors, worried about potential dividend cuts, have been selling the stock and pushing the dividend yield percentage higher.

But the more insidious warning sign is when a company offers an attractive dividend, but can’t pay it consistently because it has loads of debt and poor fundamentals, like the ailing General Electric, the “Mad Money” host said.

Click here to read his full take.

FireEye CEO on election cybersecurity

FireEye CEO Kevin Mandia

Getty Images
FireEye CEO Kevin Mandia

The 2016 presidential election may have sparked concerns about the U.S. voting system’s cybersecurity, but this time, the industry was prepared, FireEye CEO Kevin Mandia told Cramer in an interview.

“We were armed and prepared for this election, and that’s across the board,” said Mandia, whose company provides cybersecurity for enterprises. “That’s FireEye, that’s industry, that’s the operating system companies, that’s the state officials — everybody was shields up, borrowing the old Star Trek term, for this election.”

But while the elections were “pretty darn secure,” in Mandia’s view, the CEO had a lingering worry: cyber-operations that seek to influence voters’ opinions rather than change an election’s results outright.

“That’s a concern that we all should have. It’s very hard, on an anonymous internet, to police that to make sure that not only are we getting truth in what we’re being told, but also getting truth about people’s identities,” he told Cramer. “It’s going to be hard for us to combat those folks that want to influence the hearts and the minds of the American people in an inappropriate way.”

Click here to watch Mandia’s full interview.

The wrong winners?

Finally, in unpacking Monday’s downward swing in the stock market, Cramer saw some of the leading stocks sending worrisome signs.

“We have precisely the wrong leaders in this market. The toothpaste stocks are going higher; everything that does well in a strong economy? It’s going lower,” he said.

The “Mad Money” host warned when sectors like health care, utilities and consumer packaged goods are strong while the technology cohort is weak, it tends to signal that the economy is approaching a slowdown.

“We need to see a trade deal with China or some sign that the Federal Reserve will wait and see before it hits us with more rate hikes next year,” he said. “The problem? We’ve been getting weaker for some time and the Fed doesn’t seem to care — they’re still very committed to the ‘destroy the economy in order to save it’ approach.”

Lightning round: Prudent in PRU?

In Cramer’s extra-special lightning round, he answered current and former U.S. Armed Forces members’ stock questions:

Prudential Financial Inc.: “I like Prudential here. I like the insurers. We are in a deflationary environment, not an inflationary environment. The Fed’s got it wrong and I would say buy, buy, buy!”

Micron Technology Inc.: “No. Not cheap yet. I think that you haven’t seen the estimates cut. As soon as the estimates are cut, then we can look at it. Until then, it can continue to go lower.”