Jim Cramer for the better part of a year now has proclaimed his belief that the Chinese growth engine would pull the world economy out of this recession. On Thursday evening he took a closer look at jobs creation or lack there of comparing China and the U.S., with a looming job report for September on tap for Friday morning. Job creation is an essential part of a fundamentally strong recovery. At this point, the U.S. continues to shed jobs month after month.
Now, armed with the data of the jobs report, we know that job losses were even worse than expected in September and the unemployment rate is at a 26-year high.
“The Chinese are having an infrastructure-led recovery that’s anything but jobless. That’s what we should be seeing here in the United States. That’s why I think we were down so bad today. We got a recovery that’s losing that’s the number this morning, you got Goldman Sachs saying tomorrow’s number is bad. Hey, it’s about jobs. It’s not about losing jobs. It’s about creating them…
Recognize that the drumbeat of health care has created a climate where if you’re a businessperson, you’re going to put all of your hiring on hold until you know the outcome. Remember this is what I am saying the reason that we’re down so much today. Who could afford to hire new people? You know the big swing in the bottom line that comes to health care could go against you. Congress has to get proactive about job creation. Few companies have a reason to go back to hiring as their profits are being swelled by cost-savings from curtailing head count expenses…” — CNBC’s Mad Money 10/1/2009
In Cramer’s view, a lot of the blame lay at the feet of Congress, as they undertake what could be a massive reorganization of healthcare. There is little doubt that this is a factor in companies’ hiring decisions. But also, the Fed’s Eric Rosengren believes there is still excess capacity in the labor market, and with the average work week continuing to decline, he is probably right. Not to mention the fact that companies have mostly beaten analysts’ profit expectations over the last two quarters through cost cutting rather than any significant growth in revenue. We are all well aware that this estimate beating through cost reduction has been very beneficial to investors over the past six months. In this environment, it must be tough for CEO’s to consider undertaking wide-scale hiring in hopes of attaining top line growth. After all, their job is to do what is best for shareholders and not to lower unemployment.
Cramer is advocating putting some stocks that are influenced by China in your portfolio. The Chinese stimulus package has been infrastructure intensive, which has led to job growth. He pointed to a few companies that he likes in light of the resurgence in China.
1. Wynn Resorts (NASDAQ:WYNN)- The resort and casino operator is building a significant presence in Macau, which Cramer says represents 61% of WYNN’s value.
2. Procter and Gamble (NYSE:PG)- The huge consumer stables company could reap the benefits of growing consumer spending in China, not to mention they benefit from a falling dollar. PG claims 58% of its revenue overseas and 30% from emerging markets. Obviously, this emerging market portion could grow much faster than the rest, especially if China’s economy can re-ignite its rapid growth.
3. Vale S.A. (NASDAQ:VALE), BHP Billiton (NYSE:BHP), Freeport-McMoran (NYSE:FCX)- These are plain and simple infrastructure plays as they provide the basic materials necessary to build out their projects. China has been a huge consumer of these materials in the past, and this should continue in at least the near future. These companies supply the resources that are essential to fueling growth.