This market is not the dot-com crash or the financial crisis. Here's how to play it

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We fear pretty much everything right now. We fear higher prices, traditional inflation. And we fear lower prices, cascading oil and copper. We fear the 2-year Treasury yield going much higher because that would mean another 100 basis points of interest rate hikes by the Federal Reserve this year. We fear it going lower because that would show that Fed Chairman Jerome Powell is letting up on his inflation fight, while it is still raging. We fear that earnings will be awful. But we fear that unemployment remains too low to thwart wage inflation. We fear World War III in Ukraine after Russia's big troop call-up. We fear the Chinese making a run at Taiwan. In short, we fear everything. So, let's step back for a second. While we are not in an FDR moment where the "only thing we have to fear is fear itself," we are not in a situation where things are intractable and the republic hangs in the balance, something that was true in 1933 when we actually did have more to fear than fear itself, and it was true in 2008 when so many big institutions failed that we were lucky the major stock benchmarks weren't cut in half. What we do have is a problem of price: Stocks went up way too much, leading into their peak in November of last year, which was the last time we saw a record high in the Nasdaq . The Dow Jones Industrial Average and the S & P 500 hit their records in early January. That's important because we lack a compass. At this point it means absolutely nothing how far stocks have fallen from their highs. Nothing at all. Or Club holdings Advanced Micro Devices (AMD) and Nvidia (NVDA) would have stopped a long time ago. We have only one benchmark like this and that was 2000 to 2001, when the Nasdaq overshoot by about 3,000 points off a 2,000 point basis. But the Nasdaq, at the time, was filled with unprofitable companies, with stocks soaring even higher, on a percentage basis, than they have now. The S & P 500 never really got out of control back then — and, relative to bonds, it didn't either. So price isn't as important as we tend to think because we don't have enough totems to judge how out of whack things got in November. You have to throw out where a stock has been. It's meaningless. But what's not been meaningless is the relationship between stocks and bonds. Back in 2000, bonds weren't much of a factor. However, back in November of 2021 they were, in retrospect, the most important thing that mattered because there was so much money in the form of stocks and bonds and loans, being created that the run-up, we now realize, had more to do with cheap money than with great earnings. We had an inkling of that when we saw the SPACs (special purpose acquisition companies or so-called blank check companies) and the junk IPOs (initial public offerings) start falling apart. However, with 600 new stocks to analyze, it was a pretty overwhelming moment. At this point, we all wish that Powell had pulled the trigger earlier. Before we are too harsh, though, if you go back to February of 2020, in the beginning of the Covid, only Powell really understood what awaited us, certainly not the president and definitely not Congress at the time. The Fed chairman, correctly, feared the economy was going to crash, and he would have been right. So he went really loose. What people seem to forget is that we were at a very perilous moment, one where you could have expected that American Airlines (AAL), Delta Air Lines (DAL), United Airlines (UAL), Carnival (CCL), Norwegian Cruise Line (NCHL) and Royal Caribbean Cruises (RCL) would have filed bankruptcy and Boeing (BA) not long after. We would still be dealing with the aftermath of something that didn't happen because Powell prevented it. Of course, you are only as good as your last save, and Powell whiffed on this one. Still, we seem to forget that if you look at when he got tough, he was defying the conventional media, which had us all scared that the omicron Covid variant was not only more contagious but more virulent. Looking back he's been hard on himself, just like everyone else, that he started tightening too late. However, can you imagine if he started tightening say, in October 2021, and would have had to loosen two months later because of fear of omicron? The second guessing disgusts me. We were worried about our lives. Because Powell didn't act back then we somehow think, though that it doesn't matter. That he has to tighten so hard that we are going to be in freefall. In truth, the speed with which Powell is tightening is positively Volcker like when it comes to percentages — Paul Volcker (Fed chairman from 1979 to 1987) standing for the great man who saved us from Weimar-like inflation — not the hated man that Powell is soon to be, when we have so many people thrown out of work and credit crises from outfits we have never heard of who borrowed short to buy medium. Yes, I think that the speed with which the 2-year yield is going to — what, 5%? (currently north of 4%) — has more to do with someone who borrowed to buy the 2-year aggressively when it was at 3%, right before Powell's Jackson Hole hawkish address , because that seemed like such an amazing bet. I figure we will soon know who did it and it can explain some of the velocity. The rest of the velocity, though, has to do with the jawboning that Powell has undertaken. The 2-year at more than 4.2% represents a fairly good chance that we get 100 basis points or more this year, only because we forget that two years is not all that far away, and you need the bond to go up in price rather shortly as it does go out at par, something that the fear merchants seem to be in denial about. Remember I am talking about the 2-year at the time of its price at Jackson Hole, not Friday's on the run 2-year. Bond prices and yields move in opposite directions. Because of the speed with which he is acting, Powell has charged out on a path that we have no analogue for which is what's so unnerving. Many of us are still hopeful we could be in for a 1994 soft-landing for the economy but the '94 camp followers are dwindling, replaced by a majority that now accepts that not only is a recession going to happen, it will be a doozy. The dichotomy for me, starting Saturday night when I was flying home from the West Coast, will be hard landing, versus crash landing: a foamed runway versus one where people really get hurt. At least I am not calling for some economic landing of unfathomable proportions, just one where not everyone makes it home. Do I really believe that? Here's where things get really tricky. I still think we will land unscathed after betting that we won't. This moment reminds me of when a plane I was on was struck by lightning. We were coming back from Richmond and we couldn't avoid a storm area so we plowed right through it. The direct hit caused the plane to go boom and then go quiet and all lights went out. We were in free fall for about 8 seconds and then pulled up and some back-up lights went on. We were plenty scared but thought we had survived. Then, though, because the public address system had blown out, the stewards came by, row by row and told us that we would be fine but that not everything was working right. No kidding. It was the second trip around when they told us what was wrong: no landing gear. We would land belly up. So we would have to put our heads between our legs because it was possible that the overheads would collapse. Stupid overheads. I was typing a piece for thestreet.com paying no attention to anything because if we made it, and I had written nothing, I would be in a hell of a jam, and if we didn't make it, well who cares. So the former seemed like a good idea until a bunch of people complained that I wasn't silent and respectful of "the moment" whatever the hell the moment was. We circled and circled over our Newark destination until we had no fuel left and then, like a glider, we landed on the runway at its very beginning. There were firetrucks everywhere and foam all over the place. We bounced four times, each time less high and then we stopped to tremendous applause. We went down those funny chutes which I thought was hilarious and gave each other high fives like we had something to do with it. Anyway, that's the kind of economic crash I hope for. Nobody got hurt. But that is increasingly seeming too optimistic. How about we call this a scary landing, because isn't that where we are? I think that's certainly how people act. Is there such a thing as economic foam? Can a pilot be as good as the nameless U.S. airlines one was on that fateful day? I think that most participants have decided there's no hope and they are using an analogue that's 2000-2001 (dot-com bubble bursting) or even 2007 (before the financial crisis and the Great Recession). I think that both are too dire and here is why: in both periods things were far worse with the economy. We have always been a people with tons of debt; never one with tons of cash. We are the latter now and if you listened to Powell he wants that cash to run out: consider that the jet fuel. When the plane is running on empty, we can land, but not until then, which means that we have to see not only unemployment spike but savings drop severely or at least spending for anything, not just goods go flat on the tarmac. It's scary because, like on that plane from Richmond, the landing gear is so definitively shot. So why not sell everything and huddle in the 2-year Treasury? First, I admit to having the fondness for a 4% yielding piece of paper where I can get my money back. Hey, I am older, I might need it. But what's against that? You have to bet that you can get back in right away. Within two years' time. That's not an easy bet to make. You need to figure that even after the Great Recession many stocks where back to their 2007 levels within 18 months of their March 2009 lows. The only stocks that truly failed to go higher were the bank stocks and they still are awful when it comes to the way they used to trade, which was pretty strong with a good yield. I think they became pathetic because of strong government regulation, which is still with us, and a lack of M & A (merger and acquisition activity), which will always be with us. Everything else, though, made its way back with alacrity and things were far worse then. Tech That is why, after a period of aggressive selling, we want to buy stocks back now, including tech, although less than others if only because the ETFs (exchange-traded funds) have made it hard to distinguish good tech from bad tech. Because of that lack of distinction, it seems that we are going to roll back multiyear moves in tech. But I am not quite sure that is true. Why is that such a hard thing to figure? Because you have lost the reasons we liked tech. First, was Covid where we saw a tremendous surge in video gaming and personal computers; and second, what we thought were secular gains in high performance computing and 5G next generation mobile. Covid created a pull-through in personal computers via work from home that we will have to annualize the full bore buy of tech before the component and PC makers can come back. Gaming seemed so secular and is now looking so cyclical that the losses are staggering. AMD and Nvidia are the prime examples here. But it's cellphones that were supposed to be immune, especially with 5G. That hasn't happened because no one would believe that the Chinese would abandon all reason and stop the process of buying of new phones other than by e-commerce. We just didn't see it. We thought they would be uber-rational. Instead they are uber-crazy. Look out, when they have their coronation of Chinese President Xi Jinping, they are going to be embarking on one terrible national super-spreader event the likes of which we have never seen. Their vaccines only stop 40% at best, so it should be a nightmare for them although who knows for us given how cloistered and combative they have become. I thought that digitization, the cloud, and the high performance computers needed for both, would stay strong and I feel even more so after spending a week in San Francisco, spending time with what most of you would regard as an absurd number of CEOs. I know this: Digitization has not slowed down. The stocks reflect a tougher deal environment and a stronger dollar; but no more than that. Nobody is saying they don't have to digitize. And many are saying that they must go to the cloud as soon as possible, as long as it doesn't hurt earnings, which it does, so they have to be careful by asking for terms that are less onerous on their cloud plans. In other words, expect number cuts but nothing as severe as some stocks are indicating. So, tech's a real issue but not some sort of existential issue. Defense and cybersecurity How about the rest of the market? There's a lot of lazy thinking out there. If we are in a foamed landing, we will wish we had bought, not sold here for a host of stocks except those that are doing so well in an inflationary environment, the bull markets of defense and cybersecurity. They are, for the moment, the only two out there, so at least, when I end my show, I can deliver on my finding the bull. Those two bulls are ferocious and snorting and you can play them best by owning Lockheed Martin (LMT), Raytheon Technologies (RTX), General Dynamics (GD) and Northrop Grumman (NOC) on the military side and Palo Alto Networks (PANW), that one is on our Bullpen watch-list, and CrowdStrike (CRWD) on cyber. Consumer staples I think that some cohorts just seem like they are just fine: the consumer packaged good stocks, a la General Mills (GIS) — in the Club we own Procter & Gamble (PG) ; the utilities because they do well going into, not out of, a recession; and drugs and health-care stocks, which I regard as must buys because if we are going to have a recession then it will most likely create a wave of Republican voting that will allow health care to take its pound of flesh and money. So those groups are fine. We keep buying them. Banks I am about to turn very positive on the banks — the Club holds Wells Fargo (WFC) and Morgan Stanley (MS) — because they can invest your money overnight and make a killing. No one cares right now because they see bad loans all over the place but that's just wrong as the regulatory regime has reduced the ability to make bad loans. There's a lot of cash out there to buy everything and while credit will get tough, the credit balances will allow an outfit like Wells Fargo to do incredibly well. Same with Bank of America (BAC). Oil and natural gas We had been huge holders of oil and natural gas names, twice the amount of exposure to the S & P 500 than the index itself, but we have cut that way back. Good call. The question now is what's the right price of crude? A recession will certainly cause us to use less. The reckless release of the Strategic Petroleum Reserve will stop after the midterms — if you can think that far out. We don't know what will happen in Russia but the call up of reserves means that there will need to be a gigantic slug of oil sold because, unlike in the U.S., the actual payment of soldiers is a big hit to their budget as it was when they went to war against Chechnya. The Russians are hoping that this time they will get it right, as they did in the second war in Chechnya. What they seem to keep forgetting is that the Ukrainian people have reverted to their 1930s stand against Russia: they hate them. Without a turning of the Ukrainian people back to Mother Russia, which is what happened in Chechnya in 1999, the Russians will lose if we keep giving Ukraine modern weapons. No soldiers no matter how many they are, can defeat modern weapons as long as there is a resupply and it does look like we are willing to do so, hence the reason to own defense. So, oil goes to the per-barrel level in the $60s on Russian pumping until they realize they can't win and we have a more normal use pattern. We are so far away from electric vehicles predominating that it isn't even worth considering when oil goes lower and natural gas just isn't that profitable. Retail Which brings me to the rubber and the road: retail. Here, the Costco (COST) conference call is all you need to know. It is the primer we all need, courtesy of Rich Galanti, the best CFO in the world, bar none. In Rich's world we have already passed the peak in a lot of what has caused inflation. We are way down when it comes to containers. We are much better when it comes to supply chain. Most commodities have already peaked. They are actively telling suppliers if you have raised price to us because of transportation, supply chain or raw materials, we want those pries rolled back. As the second largest retailer in North America, and by far the best operator, they are going to bring down prices that you see at their stores. Other store chains will follow or they will lose even more share to Club holding Costco. And they lost a lot of share to Costco during Covid. Costco is to be feared and only Total Wine seems to have lower prices. I say that as someone with a mezcal operation, Fosforo, so I know whereof I speak. Bottom line So, commodity inflation is, AT LAST, coming down which is, just now beginning to translate into lower prices for you, the consumer, because Costco has that kind of clout. It's the beginning of the end of inflation at the consumer level for day to day goods. I will make the same prediction for cars and homes. Autos have been hurt by supply chain but I think that's coming to an end. Club holding Ford (F) was really dinged by a factor that makes nameplates for the Bronco and the F-150 lines hence why they are so confident that the 50,000 vehicles on their lots will soon be delivered. Of course, this is the last group you want to own in a recession but that's exactly why they have fallen so much. I am at last ready to buy back the Ford we sold twice as high as it is now. The Costco call, though, admits that there is no let up in wage inflation and here is where we must end. Powell has just begun the fight against wage inflation with this last hike. Before then it was all catch-up. Now he recognizes the lightning bolt has hit. He has figured out there is no landing gear. But he is confident that he can land the plane after running out of fuel but before the crashed. I remember the looks of the people on the plane before we landed. Everyone thought they were going to die. There was more praying than you could shake a stick at. I didn't think we would. I figure the guy at the wheel's a pro. He knows what he is doing. He has prepared for this moment all of his life. So has Powell. The plane will bounce. The people who put their heads between their legs will be wailing. Me? I am typing. Same as before. (Jim Cramer's Charitable Trust is long AMD, NVDA, WFC, MS, COST and F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Jim Cramer at the NYSE, June 30, 2022.

Virginia Sherwood | CNBC