Wednesday, May 13, 2009
(Cont'd from above)...

Jim (cont'd):   

Which brings me to General Mills Inc. (GIS*)...

If you've noticed, we've built a "Cheerios-amid" (Jim points to a pyramid of Cheerios boxes that is taller than him on the set)... silly ways to get you to focus on the very dull, but critically important, topic of "sector rotation"... Important, if we want to try to make some money, and important if we want to try to minimize losses.

You see, this morning, I picked up the Wall Street Journal, and I blanched... Right at the top, in the upper left, the lead was a picture of a Cheerio, and the headline, "Regulators Find Hole In Cheerios Claim"... followed by the lead... it gets worse... "The FDA warned General Mills that some health claims made for its Cheerios cereal violated the rules." Heaven help us! I had seen a squib about the FDA's criticism the day before, but didn't think much of it. But here it is... right on the top left... key area... fabulous real estate!...

And I figured, okay... I own GIS for my charitable trust, ActionAlertsPlus.com, and I am going to be in for a really, really long, brutal day... a general homespun pasting of one of my largest positions!...

I figured the stock would open down at least a buck... as Cheerios is a huge product for General Mills, and the heart health claim may be one of the biggest differentiators for consumers, when it comes to choosing what cereal to buy.

When I saw the stock index futures plunging before the opening of trading, I started thinking it's going to be even worse than that... I broke out in sweat, but I do that all the time... Maybe GIS would go all the way down to $50, from $53.50... where it went out the night before...

And you know what happens?...

General Mills opens virtually unchanged, and then proceeds to rally... to rally... That, ladies and gentlemen, is when the alarm bells went off in my head... You see, this stock should have been down huge, particularly with the worst publicity that you could have about its most important product. Instead, it received no more than a glancing blow... down 19 cents at the end of the day... but up for much of it...

Oh sure, that's a triumph for General Mills... but it's a tragedy for 90% of the market, and it is deeply worrisome to me...

You see, if General Mills is holding its own, and the rest of its cohort, the Pepsi and the MRK and the JNJ are all up, as they were on this hugely down day, then the market is saying something... oh no, it's screaming something...

It's saying to the Jim Cramers and everybody else out there... be careful... be careful, because the economy could be weaker than we think. Maybe we aren't going to get out of the morass as fast as we'd like. Maybe there are other forces at work that we hadn't thought of...

And, when the market speaks that loudly, you'd better listen...

Now, you know I've championed this market... you know I think it can go higher... work its way higher...

At the same time, though... I am respectful of what this market was saying today... And, today, it shouted, you better be more careful... there's new data.

Okay... What's happening?...

Retail sales, for one, weren't that strong. I thought they'd be stronger.

Second, we know the supply is endless from these secondary offerings, even as they only did work... meaning the key merchandise, priced this morning... Ford (F) and BB & T Corp. (BBT)... went up from where they were priced. Now, I will have more on that in a moment...

But what I think happened today was just terrible for the stocks that need the economy to stabilize... and not a Cheerio-amid to stabilize... and what we saw was the other Obama... that first Obama that got inaugurated... That one seemed back today. That's the one that made owning stocks a whole lot harder...

We saw, in this one day, a lot of real bad news out of Washington... for those who own stocks in their 401(k)s... including... well, let's start... the size of the tax hikes coming, which take the breath away of a lot of people who spend and create jobs... people whose decisions are integral to the recovery, especially when we saw the drop in the retail sales number.

I now calculate that I'm in the 55% bracket, when we add all my taxes together... I start paying myself when I'm at August...

We saw a story about taxing employee health benefits... that was nasty... And, worst of all, we saw a story, right next to my little buddy, pal, friend, Cheerios... a story about the government getting involved in the salaries at banks that didn't even take our money...

Now, don't get me wrong... I am all in favor of matching pay to performance... something that's not being done correctly at all of the banks... but this kind of news does not inspire confidence about the future... it just creates anxiety...

This rally - which has been so strong - can only be stopped by one force... and that force is Washington... And, suddenly, Washington is driving buyers to the Cheerio-amid... it's driving buyers to General Mills, and away from the generals that have led us... oil, tech and the financials...

And the impact of Washington's meddling?... We get huge selloffs in everything that involved in consumer spending, except on items that can't be skimped on... on drugs, on healthcare, on food... on Cheerios... We get terrible destruction on transports, the construction stocks... on anything that makes a product that can't be drunk, smoked, eaten, or washed with. That's how you get Procter & Gamble (PG) up... that's how you get Johnson & Johnson (JNJ) up and Merck (MRK)... And, most important, that's how you get General Mills to actually, at one point, rally at the opening, instead of collapsing despite the worst single bit of news you could imagine for its flagship brand...

Here's the bottom line...

▼   ▼   ▼   ▼   ▼

The Bottom Line!:     I think the market's too fragile to handle the news out of Washington.  I think the visceral reaction we got to stocks that involve consumer spending shows that...   The market is saying...  No!  The market's screaming from the "Cheerio-amid" tops!... that this is not the time to raise taxes or overhaul bank pay...  Most important, I think the market says, get ready, the money is going to shift from leadership of economic recovery, to economic hardship... and nothing signals this vicious rotation more than the ability of General Mills Inc. (GIS*) to withstand the onslaught of selling, and barely bat an eyelash on a down-185-point day.   It looks like we have to find the bull market in the cereal aisle of the supermarket, for now.  Yes, it's hiding in that aisle, and the "cereal-amid" may be the best place to look for it, while it's hiding. 

[verbatim recap]

[end of segment]

Read Jim's next Segment here  

Read Jim's next Segment here