CNBC’s Cramer Warns Investors Are Ignoring Risk

There’s fighting in Gaza, shelling in Ukraine and tremendous tension in Libya, and yet stocks are rallying as if none of it was happening.

The price action doesn’t make much sense. “The air is thick with geopolitical risk and a sense of global mayhem,” Cramer noted. Yet stocks ended Monday’s session with a modest advance.
Although world events would suggest stocks should selloff, Cramer thinks strength has prevailed because of a phenomenon underway deep inside the market.

Because there’s been so much unexpected M&A, Cramer says pros are reluctant to make major bets against stocks, even when the negative bet involves a company that’s executing quite poorly.

As an example Cramer cited Family Dollar, a company that he’s often lamented was poorly run, and its acquisition by Dollar Tree on Monday.

“In the old days when there was a hobbled competitor like Family Dollar you shorted it and stayed short, betting that it would just go away. But in this market you can’t do that. You have to be sensitive to the possibility that it could get a takeover bid.”
In fact, the acquisition makes shorting a poorly performing company such as Family Dollar quite hazardous. Dollar Tree offered $59.60 in cash and the rest in stock for each Family Dollar share, in a deal with an enterprise value of about $9.2 billion. By the close shares had rallied almost 25 percent.

That’s the kind of development rattles pros who are thinking about betting against the market.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza