Mad Money w/ Jim Cramer 9/10/26

Mad Money w/ Jim Cramer

Jim Cramer reflects on a pivotal lesson from his Goldman Sachs training days, where he learned that bond yields—particularly the 30-year Treasury—are the ultimate driver of stock prices, not

Key takeaways

• The 30-year Treasury yield is the primary determinant of stock valuations, overriding company-specific fundamentals.
• High interest rates are damaging housing markets by pushing mortgage rates above 7%, reducing home affordability and activity.

Main topics

• Impact of 30-year Treasury yields on stock valuations
• Housing market pressure from rising mortgage rates

Notable quotes

"The long bond, the 30-year treasury, is in charge of everything."

"You're almost going to have to double your mortgage rate if you buy a new place. So why ever sell your old place?"

Conclusion

Cramer concludes that while short-term volatility in sectors like retail and airlines is driven by macro

Transcript preview

Speaker 3 (0:00) It's NFL kickoff time. Exclusive NFL team valuations with sports business expert Michael Ozanian. The Speaker 5 (0:06) NFL Speaker 3 (0:07) is by far the most profitable league. NFL team valuations now on Speaker 4 (0:12) cnbc.com slash sport. My mission is simple, to make you money. I'm here to level the playing field for all investors. There's always a bone working somewhere and I promise to help you find it. Mad money starts now. Speaker 4 (0:32) I'm Kramer. Welcome to Mad Money. Welcome to Kramerica. I'll do it, friends. I'm trying to make you some money. My job is not just to entertain you, but to educate you. So call me at 1-800-743-CNBC or tweet me at Jim Kramer. Many years ago, at a meeting in the training program at Goldman Sachs, we were being quizzed about our knowledge of the markets. The instructor Dave, toughest nails, Dave, pointed at me and said, Jim, what's the principal determinant of the price of the stock of Delta Airlines? Wheelhouse, right in my wheelhouse, like a big fat pitch, a curve that hangs, and I can visualize the ball rising to the upper deck as I talk. Dave, I told him, Delta, which traded at $34, the PE of seven, is hostage to the price of oil and unhinged variable costs, and PRASM, or passenger revenue per seat mile, as well as CASM, cost per available seat mile. With Delta, well, both are above industry standards, but it's low PE, so I can see it rising over time. I smiled a whole time, rattled off all that information. I mean, who knows more than me? Oozing with youthful self-confidence. No, Dave said. It's hostage to the long bond, the 30-year treasury. Now leave this room, go outside for the rest of the meeting. Might help you learn something, including some humility. Speaker 4 (1:58) So beet red face, tail between my legs, I walked out of the meeting of 24 young people, my peers, and stood around waiting in the hall for his conclusion. I never forgot the seared embarrassment I really hated, Dave, for a really long time. But I learned a valuable lesson. The long bond, the 30-year treasury, is in charge of everything. Speaker 4 (2:18) So on a day where we had more downward pressure because of interest rates, especially the long bond, you saw the damage the bond market can do with the Dow sinking 317 points as it'd be losing 0.58 % and the Nasdaq falling 0.65%. The long bond responding to higher oil prices, of course. Why was Dave so sure that the long bond controlled Delta's share price and not the fundamentals of the actual business? Because that's how the stock market works. Look at what happened today. The Walmart went right through 5.3 percent relentless run. Unlike any I can remember, just tracking oil all the way up. The 30 year is inexorable and it's taking things with like a landslide. First and most obvious are mortgage rates. Today, they breached 7 percent. Oh, man. New existing home sales were awful. Rates were kept so long in this country, frankly. You're almost going to have to double your mortgage rate if you buy a new place. So why ever sell your old place? That's putting a lot of houses out of reach. New home buyers might not be able to afford that 7 % rate. It defeats the American dream. Housing is 10 % of the economy, but it punches well above its weight. Think about how many things go into a house. Think about the materials, the wages, the brokers, the lawyers, the plumbers, the electricians, the landscaping. Just as shooting works. And the retailers from our age to Best Buy to Home Depot and Lowe's. Stanley. Stanley Buck and Decker. Then there's the investor. Stocks are terrific. They can make you fortunate, especially younger people who can afford to take chances. But you know what beats stocks for anyone who's 50 or older? The 30-year treasury, the king, that's what. Sure, inflation could go higher and you might get squeezed, but historically it's not so bad to get a 5.3 % risk-free return. Believe me, when you get older, you can still own some Nvidia and some Apple. You might like a little Chevron or a Procter, too. But that 30-year is the ultimate sleep at night piece of paper. Not that I know from personal experience, but lots of people tell me it's good to sleep at night. The yield on the 30-year can destroy housing, but it's an even more powerful competitor when it comes to stocks, lower yielding stocks in a sloppy environment like this one. Then there's the problem with too much supply. The government needs to pay for all this debt. We're lucky Uncle Sam can issue bonds to pay for it, and people still buy them because they're backed by the full faith and credit of the U.S. government. But the level of issuance is insane. You know, there are currently about $4.5 trillion in loan bonds. Right now, our Treasury Secretary wants to try to keep that interest rate down to reverse all the fallout. He says he's got the inside scoop or something. He's buying them in order to push the price up and the yield down. The problem is Treasury's doing... a $6 billion buyback when there are roughly $4.5 trillion, B versus T, worth of loan bonds out there. Now, that's too much, and he has too little firepower. The whole thing's a little silly, isn't it? Although less silly than giving every adult $5,000 so the Republicans can keep control of Congress after the midterms. That would be another trillion dollars. Mr. Treasury Secretary, save the powder. So knowing all of this, let's go back to Goldman and Dave from Delta. First, we know that stocks are assets like bonds. You know that a risk-free bond has a huge yield, and people are more likely to choose to buy that bond over a piece of an airline company in common stock, especially when airlines are notorious for being unsafe investments or at least fickle. You price that stock off the 30-year Treasury, and right now the Treasury wins. If rates on that long bond are high, that's going to slow down the economy. It's not that oil is so high. Something the president is very worried about, where he wouldn't be offering five grand for people to party with, whatever. If the economy slows down, then people will be laid off and plans to expand will be scrapped. Right now, the thing that makes the economy hum and keep stocks relatively in the air, despite higher oil prices, is employment, which remains pretty strong. If that were to change, then you know people won't travel as much. The airlines will cut estimates. The stocks will get hammered. That's what these stocks are anticipating. Speaker 4 (6:01) beyond the incredibly high price of oil that cuts deeply into the bottom line. Airlines have to constantly borrow money to buy planes, which is a huge expense for them. We see treasuries trading at 5.3%. We must always remember that very few companies have a credit rating high enough to borrow near the same rate as the federal government. Airlines are stronger than they used to be, but they're notoriously inconsistent. They have to pay well above that 5.3 % to borrow the money they need to buy planes. That means they can't expand if 30 years isn't behaving. They can't grow, and people don't like no-growth stocks, hence the seven multiple of Delta back then. Now, we know there are a lot of other factors that go into running an airline. We know some airlines are better than others. Delta's always been one of the best. But the bottom line, that's not the most important thing, according to Disco Dave, as I called him, because I once saw him buying a boombox at 47th Street Photo. I know this because I was buying a boombox, too. It was a year after my Delta fiasco, too close to the scalding. I bumped into Dave about a decade later, though. And by that point, I know what I would have done if someone had given me all the money. confidence, all-knowing answer about the prasm and the chasm. I would have kicked him the heck out of the meeting and told him he had to wait in the hall. So I thanked him, told him so, and I added that I would have put up a giant whiteboard in the hall and make that kid write the long bod over and over and over again until the meeting drew to its conclusion. Let's go to Elizabeth in Florida. Elizabeth! Speaker 2 (7:19) Hey, Jim. I hope you're doing well. Elizabeth, super. Speaker 4 (7:23) How about you? Speaker 2 (7:24) Great. Not too bad. I've got this really quick question for you. Sure. I saw where you liked helmet on September 2nd. And with the recent sell-off on the news of companies vertically integrating turbine component casting in-house, do you see future revenue displacement that justifies the repricing of helmet's moat? Or is the market overreacting because demand remains supply constrained? Speaker 5 (7:49) Look, Speaker 4 (7:50) I'll tell you here's the problem. And we call it how I met my mother. We joke about it. But it's a fastener company. And it frankly is, at most times, a very commodity-oriented business. And it happens to sell at 44 times earnings. And we don't want to pay that for commodities. Even though the business is strong, I think people are saying, wait a second, that's too much to pay. And I'm going to wait till it goes lower. And if you look at the chart, it does seem like it is going lower. Let's go to Mike, Mike, Mike in Colorado. Mike. Dr. Graber, giant Speaker 6 (8:20) size from Colorado. Long time listener. First time caller. Love what you do. Love the way you teach us about the inner workings of the market. Speaker 4 (8:28) That's it. Speaker 6 (8:29) It's not easy. I mean, I Speaker 4 (8:30) got to make the classroom come alive every night. You know what I mean? But thank you for calling in. Speaker 6 (8:35) My wife says I need professional help, so I called you. I'm also buying the book right after this call. Let's go to work. I am a Micron millionaire. I took $1.6 million at the beginning of the year in my 401k and turned it into $7.4, mostly from Micron stock. I attribute my success to your teachings, especially buy and homework. I wrote a four-page thesis on the stock