Cramer: Whither Telecoms?

So what happens now?

The hope had been that the Fed would keep cutting, which would allow for the hobbled telephone companies to reliquefy, but the strong Producer Price Index number and the stronger housing numbers put the speed of the cuts into question again.

Without fast cuts, I think we are looking at a collapse of billions in debt and a subsequent downsizing of the telecom industry. If that's the case, then you have the secular decline thesis. Usually, I am too much of a bull to buy into a secular decline scenario, but I can't hide from the facts: This telecom market is looking more and more like the railroads of the 1880s every day.

That doesn't mean that, long-term, demand won't come back. It does mean, though, that it won't come back in any fashion that would allow 30 percent to 50 percent growth to resume.

Something more like the growth of health care or maybe soft drinks or beer could happen. If that's the case, there is no reason to pay high multiples for that kind of growth.

Picture Not So Rosy

That's why everything in tech, which became so levered to this phone buildout, is so murky right now. Oddly, if the Nazz were to fall to 2000, I think you get another big interest rate cut which will again stir hope that the correction is just cyclical in nature.

But the longer it goes on, the less relevant or likely that is. That's why when you hear "secular decline," that's a call for selling these stocks, even down here. Because in a secular decline, there is no long-term bet. You can't just hold on and hope.

Now, let's go back to the rails again. If you were a maker of locomotives, like the Baldwin locomotive company — the best there was at the turn of the century — and the orders turned down, I am sure there were people who believed it was just cyclical and it would come back.

In the long term, "they always come back" would have been the mantra. They never did. Baldwin doesn't exist any more. The long term was a canard. That's what people are worried about now. That's why the debate is so important. If you understand the debate, then you know that you must take some action to protect yourself.

I don't think the situation is Baldwin-dire. I don't even think it is as bad as if you are in Norfolk Southern or Union Pacific. Those grow as fast as the economy, and not much faster.

Farther to Fall

I do think, however, that the "normal" growth rate we saw since the popularization of the Internet was actually, in retrospect, totally aberrational, and that we are never going back to those hyper rates of growth.

If that is the case, these stocks have farther to fall because their earnings estimates, the key to where the stocks trade, are still too high. Those who think these stocks are value stocks because of their declines are deluding themselves. The stocks have come down, but they are no cheaper, because the earnings estimates have come down faster.

And because it is more secular than cyclical, they don't necessarily go up next year.

Something to think about when you hear the long-term sirens and think that long-term is the only way to invest rigorously. As with all secular declines, long-term is something quite different from cyclical: Long-term is the enemy.

James J. Cramer is a director and co-founder of He contributes daily market commentary for's sites and serves as an adviser to the company's CEO. Outside contributing columnists for and, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. While he cannot provide investment advice or recommendations, he invites you to send comments on his column to