Not enough money is flowing into the stock market to support the three upcoming big IPOs. Sure, we’re all excited that SpaceX could become a $2 trillion company, that OpenAI is raising money at an $830 billion valuation, and that Anthropic is worth $380 billion and will probably be even bigger before launch. But what I’m more concerned about is where that money will come from. At the moment, our valuations for these companies are set by institutions with seemingly unlimited funds. I’ve never heard of any real resistance to any price. If you recall, OpenAI was valued at $500 billion, and a few weeks later it rose to $830 billion, with nothing really happening other than the ever-growing number of users. It appears that the numbers are mostly fabricated. There is no price-to-earnings multiple. These companies lose huge amounts of money. There is no plan to make money. They can justify their unprofitable nature. For they are all in a once-in-a-lifetime moment of separation from the herd, and can only stall themselves by asserting their interests. The market itself has no discipline. All fun and games until someone gets hurt. This market requires a lot of effort. There is an ongoing war in the Middle East, and it is speculated that air power could be used to destroy the current Iranian regime and open the Strait of Hormuz. So far, nothing like that. We know that as long as oil prices rise, the market will not rise. It’s just an axiom. There’s no such thing as “this time it’s different.” There is nothing different about a commodity whose price increases, pushing everything else down. You could also argue that there is more oil than in the past. But look at the price of the pump. Artificial intelligence may be creating more value, but it cannot make up for the loss in earnings per share of the S&P 500. Rising 11.4% on Thursday, the U.S. oil benchmark, WTI crude for May delivery, was up almost 12% over the previous four days, marking its sixth positive week out of seven. No one doubts the inflationary effect of oil. To put it more clearly, the market will not rise as long as the war continues. President Donald Trump seems to have the stock market in mind in some of his thinking, so it won’t be as big of a hit as we might expect. He knows that if he keeps saying the war will be over in two to four weeks, he will be reluctant to withdraw from the market. Who would want to jump just to find out the war was over two days after you left? I don’t know about you, but at this point I’d like him to state the objectives of the war and carry them out regardless of the deadline. The market is a false god when it comes to war. It means nothing except to those who think it measures their job performance. When I hear about this 2-4 week estimate with no endpoint, I try to think about how we can end the war when we are trying to get the other side to agree to something, not ourselves. We cannot force ourselves to do anything. All we can do is force the Iranians in charge to do something, and they don’t have the same deadlines as we do. As a result, you will be endlessly dragged down by the market and will not be in the mood to invest in stocks. Yes, if you are already in a war, you may not want to get out when the war is about to end. But at least at this point, no one in their right mind would say, “The war is almost over, so let me enter this market.” This means the market is at risk of running out of money. Think of it this way. What does this market want for our money? First, it thinks the president knows what’s going to happen in Iran and wants us to see it out of sight. Maybe he is. Perhaps he knows their pain threshold. Maybe he hasn’t taken off his gloves yet. Maybe he really is thinking of going back to the Stone Age and bombing the Iranians. These words are attributed to Air Force Gen. Curtis LeMay, who commanded the incendiary bombing campaign against Japan during World War II. His autobiography, LeMay, My Story, is full of vague recognition of Lemay and Stone Age phrases. These days, anyone can click on Gemini and find out about it and what LeMay did or didn’t say. Let’s rephrase it like this. LeMay is hawkish on Vietnam, and that’s what this term refers to. Implicitly, he hoped to destroy North Vietnam’s will with heavy carpet bombing. Given that his air operations in World War II probably resulted in hundreds of thousands of civilian deaths, many took this phrase to mean that he wanted the same to happen in North Vietnam. Three years after he reportedly said these words to his biographer, he retracted them, saying they were too harsh and he didn’t want to be associated with them. Somewhat paradoxically, we now have a president who threatened to do to the Iranians what the biggest Vietnam War hawks later tried to distance themselves from, even though the conflict was still going on. LeMay ran as vice presidential candidate alongside George Wallace in 1968, but denied having any say in the contents of his autobiography, even though he was a ghostwriter. To summarize my first point, we have a president who is tantamount to putting no limits on a bombing campaign except on the condition that he wins within two or four weeks, but he doesn’t know what victory is. It’s not an environment where you want to put your money to work, even when the market is oversold. Second headwind: Much of the market is on hold because we don’t know where interest rates are going. For now, I’m very comfortable being on the sidelines. You get relatively good money even with some inflation, but no capital risk. Many historically undervalued stocks will have a hard time rising if short-term interest rates don’t fall. Then there’s the new camp that says interest rates have to go up because of inflation. I think it’s unlikely, but it’s been introduced into the discourse by prediction markets and pundits, so it can’t be removed so easily. If interest rates rise, it’s hard to see anything other than a horrifying bear market happening. Remember, you do better in bear markets because you have a lot of money that won’t last long. Since everyone theoretically has the right to “vote” to predict the Fed’s actions, rather than actually being able to vote, a clear percentage of those predicting rate hikes are rooting for the bears. The longer the war goes on, the longer the wave of inflation is likely to continue. When you read about the destruction of plastic and aluminum factories in the Persian Gulf, you have to start thinking about the rising prices of factories that use those materials, from breweries to personal computers. Lives are being lost every day in this war. It sucks everything out. Third challenge: I’m about to run out of money. SpaceX, Anthropic, and OpenAI, the three big companies expected to IPO, are all great companies that are revolutionizing the world. Institutions and individuals want some of these. But let’s be honest: There isn’t a convenient pool of money waiting for these three. You have to sell something to buy them. If they are added to the S&P 500 soon, you would have to sell something to buy them. S&P doesn’t have a pool of money waiting for them. The pressure these trades can place on the market is enormous. Of course, the syndicate desk is aware of this. Perhaps you decided to limit the float to a small amount. That would theoretically increase the price of the remaining untraded shares. I don’t know how S&P will adjust that. If a syndicate’s desk only releases a small portion of the price to the public, you won’t know whether the price is artificial or real. In any case, we can assume that a large amount of new stocks will be created, which will not be good for the rest of the market. SpaceX doesn’t generate a ton of buys from SpaceX. Both Anthropic and OpenAI are more likely to be zero-sum disruptors than creators. Look at what AI did first to software-as-a-service stocks and then to enterprise software as a whole. To summarize: First, there is a war going on with no clear exit or clear negotiations that may or may not end soon, depending on both Iran and the United States. It looks a little more chimerical than it did a week ago. Second, as the war continues, inflation worsens, making it less likely that the Fed will cut interest rates. Third, too much stock is being created to sustain progress. Under these circumstances, is it really possible for NVIDIA to challenge $200 per share again? Can you really invest in Microsoft thinking that Microsoft’s Copilot initiative can match Anthropic’s appeal? Will the retail/housing/banking conglomerate benefiting from consumer spending somehow see pent-up demand flowing back into stores and inventory? Anything is possible. And what has happened so far is usually a precursor to positive events that are not yet visible. Furthermore, if you want to be really fanciful but certainly possible, what if the president said, “The Iranians chose to open the Strait of Hormuz. They capitulated. Unless they try to restart their nuclear weapons, we’re done here. If they restart their nuclear weapons, we’ll go back to bombing again.” And he leaves. At that point, you’ll face the third headwind: not having enough money for all your trades. That alone is troublesome. If the syndicate desk allows too many stock trades, we will go bankrupt. But what if it wasn’t? That way, all three negative points will disappear and you’ll wish you had bought it when you had the chance. Believe me, no matter how unlikely that positive scenario is, that’s why we’re not below the typical 20% drop in the S&P stock, and it always has been when oil prices doubled. I was hoping the S&P short range oscillator would be oversold and almost artificially fall 20%, but many stocks are already there. That hasn’t happened. So wait. We sit on our hands. What else do you need to do? (See here for a complete list of Jim Cramer Charitable Trust stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you’ll receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
