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Back Room Deal? - Cramer's Mad Money (10/10/08)

by: SA Editor Joan Wickham October 11, 2008 | about stocks: BAC / BP / C / DUK / FCX / GM / GS / HNZ / JPM / K / KBR / KFT / KMP / KO / MO / MRK / MS / NUE / USB / WFC / X    

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Joan Wickham

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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday, October 10.

Late Rally - Citigroup (C), Bank of America (BAC), Wells Fargo (WFC), JP Morgan (JPM), Morgan Stanley (MS), Goldman Sachs (GS)

The government’s best way to sustain Friday's late rally is to cut a back-room deal with the largest banks and brokerages to get them to start making loans again, Jim Cramer told viewers. On a day when Dow closed down 128 points after an extremely volatile session that saw an unprecedented 1,000-point swing, Cramer said this "secret" meeting is necessary to get the economy, credit markets and stock markets rolling again and avoid a repeat of this past week's brutal market. Cramer said he would have the Federal Reserve take the initiative by inviting to the meeting large financial institutions such as Citigroup, Bank of America, Wells Fargo, JP Morgan, Morgan Stanley, and Goldman Sachs, the latter three which he owns for his charitable trust. Cramer said the Fed would tell these financial institutions that it would not repeat the mistake it made when it allowed Lehman Bros to fail. Instead, he said, the Fed would do all that it can to get them "open for business" again. He said the Fed would guarantee all their debts as well as their brokerage, savings and corporate accounts. Furthermore it would allow them to pay off their bonds with federal money, allow them to sell their credit default swaps lower and provide them $100 billion each to lend. In return, these institutions would have to live up to their end of the bargain by "opening the spigots" and make loans again. He said the loans will be targeted to corporations, small businesses and individuals -- but not hedge funds.

Rent Some Stocks - Kellogg (K), KBR (KBR), Kraft (KFT), Heinz (HNZ), Coca-Cola (KO), Altria (MO), Merck (MRK), Nucor (NUE), Freeport McMoRan (FCX), Kinder Morgan Energy (KMP), BP (BP), US Bancorp (USB), Duke Energy (DUK)

Cramer said that after the market's worst-ever weekly drop it's "time to change our incredibly negative bias," as stocks are no longer in endless sell mode. For Cramer it's time to "rent" some stocks, with a look at owning longer term if the market again approaches the lows seen on Friday. Cramer believes the market will chase those lows since the market rarely bottoms on a Friday, and the snapback by stocks was "too far, too fast." That means a new game plan is needed for the cash that Cramer told traders to peel off last month. Expecting a gap down on both Monday and Tuesday, Cramer advises putting 25% of that cash back in play on both days. As usual, Cramer is against buying all at once. As for where to put it, Cramer offered a stock like Kellogg as a template, based on its rallying behavior a year after the 1987 crash. Of course, Cramer said this isn't 1987 - times are a lot worse. Given that, Cramer suggests looking at companies that are trading around their cash on hand, such as KBR. You should also look at companies that make products that you eat, such as Kraft, Heinz, Coca-Cola and Altria. Cramer owns Kraft and Altria in his charitable trust. Cramer also likes giant pharmaceutical Merck, cyclical plays Nucor and Freeport McMoRan, which he also owns for his charitable trust, but reminded viewers that you only want a small position with the last two, since they aren't self-financing. For oil plays, Cramer likes Kinder Morgan Energy, with its 9% yield, and BP, although oil is still going down. Cramer would be careful with financials, but he likes US Bancorp, and threw in a recommendation for Duke Energy. The new leadership is companies that don't need money, Cramer said.

1987 or 1929? That is the Question – U.S. Steel (X), General Motors (GM)

Cramer likes that traders dodged a bullet on Friday, with a "spectacular" rally off the lows of the morning, but he believes it's important to lay out the worst-case scenario so investors can go forward "with their eyes open." Keep this in mind as next week starts. Cramer can’t decide if this market is closer to 1987 or 1929, but he’s pretty sure bad news from Morgan Stanley and the lack of good news from the world’s industrialized nations could cause a sizable drop in the markets on Monday and Tuesday. The Dow could go as low as 5,886, he said. That’s what happened during the crash of 1987: The Dow lost 508 points from Friday’s close to the session-ending bell on Black Monday. Then Terrible Tuesday saw an intraday low 339 points below that before the market turned up. In the worst case, the model isn't the 1987 market crash, which saw equities bounce back only a year later, but a "1929 scenario" which brought an 89% peak-to-trough drop and a "decline that just wouldn't quit." In that model, Cramer said, currently flailing stocks like U.S. Steel and General Motors wouldn't be done yet. Cramer said that unfortunately the parallels with the 1929 crash are too close for comfort. As in 1929, he explained, we have a presidential administration that's in over its head. Listening to Bush say the government taking necessary actions to solve the crisis is like President Herbert Hoover saying then that the worst is behind us. Cramer noted the market's tanking after Bush's most recent comments about the market, as well as the similarities of a Federal Reserve too focused on inflation and a wave of bank failures. Cramer said he believes the federal bailout plan can help, but that a second Great Depression is still on the table. “That's why you have to be careful with your buying," he said. So the message here is caution. Cramer wasn’t assuming another Great Depression is coming. He just wanted to investors to be careful if they buy stocks next week. Cramer had said that there might be buying opportunities if the market dips enough. But regardless, buyers don’t want to jump in with both feet.

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This article has 12 comments:

  •  
    Oct 11 12:48 PM
    Cramer tells everyone to sell the farm, then two days later is saying to get back in again. 25%, yada yada, whatever. Bottom line is he's a clown. And usually a very good contrarian indicator.

    Question: Why does this joke of an 'expert' get so much publicity on SA? Did you see the most recent Fox Business commercial exploiting his ridiculousness?
    Reply
  •  
    Oct 11 02:26 PM
    Hey Jim , whos gonna pay for this behind the scenes deal? Have the taxpayers not been bled enough? First the 401k and pensions were stolen away and then 2 trilion + in bailouts and now give em more money ?
    Ya gotta be kidding me .. Give every american 1 million dollars and let the AIG's and banks mark to market their bullshit ponzi based synthetic positons and let em go bankrupt. How about supporting our currency while you are at it.
    Reply
  •  
    Oct 11 05:42 PM
    Why should Goldman Sachs be given a free ride at taxpayer expense. The cronyism and backroom dealing is unbelievable. Taxpayers are getting ripped off. These bozos couldn't see the problem coming and now we're expected to believe they can solve the crisis. No, you all need to be exposed and put out to pasture.
    Reply
  •  
    Oct 11 08:49 PM
    Investing is dynamic. Facts change. Cramer informs us of what's going on. He warned us all about the mistakes that were being made by the fed last year and he was right. He's warning us now about continuing to invest in this insane market. He's telling us to get out if we can't take the heat. If we stay in, then be cautious. His approach is quite sane. Cramer's no clown.
    Reply
  •  
    Oct 12 12:16 AM
    BHN,
    That makes sense. I am beginning to see one or two folks with it in every blog. Common sense is not so common. That is the exact way I saw Cramer's plight as well. His direction was not unclear but it is getting spun that way. I read an article earlier that was screaming for Cramer's head. There was blood in the water and eyes were rolling back into that protective sheath ,4 rows of teeth showing. Cramer was chum.
    He is some of the smartest chum I have ever seen when commenting on the markets. I listened and I am better off for it. Obviously many here are not. Are they pissed because they got smacked down and lost money? They could have done their homework. I did it and I will make it though, not unscathed, but I will survive this market.
    Holding Cramer's fingers to the fire over this is like blaming Remington, Springfield or Guarrand for the guns made during the reign of Hitler. I am using a gun analogy.. not a manufacturer's analogy of them so do not ridicule my lack of exact name brand guns of that era.
    I will say it again, go after the CEO's of these big companies that made so many millions. Leave Cramer to do his bidding and help the little guy.
    Reply
  •  
    Oct 12 01:15 AM
    All I hear these days is *kill the messenger*

    I take the time to watch Cramer's Mad Money show every day. I gained 83% / yes i said 83% gain / last year on my portfolio mostly due to Cramer's advisory comments and my own research. From what I've learned most Cramer-Critics don't even watch his show. They read what the NegBlogs rant and draw conclusions then repeat the hate. It's an amazing phenomenon.. Cramer seems to be hated enough you would think he's running for some elected government office.

    Chill... listen, think, research, make your own decisions and don't kill the messenger.
    Reply
  •  
    Oct 12 06:37 AM
    The problem with Cramer is that recently he changes his mind within a day. Just can't follow his quick-step dancing !!
    Reply
  •  
    Oct 12 07:04 AM
    I dislike Cramer a great deal, and wondered why he would tell everyone to sell off and stay out for 5 years. What did he see? If you look at the 1929/1930 market movements, you will be struck by the correlations between the current ones. You had a peak on Sept. 3rd at 381.17 and a drop to 198.6 on that fateful October day in 1929. The recovery rally went to early April and peaked at 294. From there we had a slow roll down to 41.22 on July 8th, 1932. To correlate in a proportional way, you would need to have our 14,280 top, go to a 7,440 bottom, then rebound to 11,014 only to drop to 1,544 over a long period of time. Maybe this is what Cramer saw, and why he reacted so strangely on The Today Show. Personally, I don't believe any two time periods are governed by mathematics, but others do and isn't TA all about fulfilling preconditioned expectations via "quants" and the computer programs they run?
    Reply
  •  
    Oct 12 09:19 PM
    I like Cramer for what he is: TV entertainment coupled with his own opinions of the market. He is one man, and one man with one man's opinion of the huge multitrillion dollar US stock market. No one person can predict the future behavior of the stock market. I take his opinions with a grain of salt. I read, and form my own opinions independently. Cramer should not be blamed for the downdraft of the market. He does come up with occasional good stocks and good calls, but again, his opinions represent those from one man, and one person. He is entitled to his opinions. After all, isn’t this the United States of America?

    Cramer and others have talked about the housing crisis which we are embroiled with in our economy. Housing prices continue to drop, and this explains why people have less cash to borrow and less cash to spend. There is a huge trickle-down phenomenon which relates to home values and the amount of the mortgages out there that are in question. The housing market is in trouble and will remain that way until credit is restored and until there is more confidence in the US economy. This will take time. It is plainly evident, based on prior recoveries that this crisis will come to an end, hopefully sooner rather than later.

    If the government starts a large infrastructure rebuilding program, fixing up our nation's streets, water supplies, highways, bridges, electrical grids, etc., the resulting employment will spill over into the housing market, and we will see a recovery. A new leader in the White House will help to restore confidence by insisting that corporations act in a prudent manner, so as not to stress the credit market in the future. Corporate greed resulted in this debacle in the stock market. There were money managers who risked their client’s assets by investing in Lehman Bros. paper, knowing full well that Lehman was in trouble. Countrywide Financial did our county a big disservice by selling mortgages to people who were not capable of paying back this debt. I’m sure the other big investment banks have done things which have threatened the vitality of the credit market. Congress should intervene in some tangible fashion so as to reestablish our economic reputation in the world.

    We have to bring this terribly expensive Iraq war to a rapid end. We are squandering $10B a month there, while the Iraqis pile up more than $80B in savings from their oil revenue. We are spending too much for foreign imported Arab oil. We need a new energy policy which will bring us closer to energy independence. We cannot continue to spend and borrow like this forever. The governments of the world at some point will stop loaning us money for fighting and consuming.

    Health care costs have to be controlled in the near future. Our corporations cannot continue to afford these elevated costs. GM with Ford have a combined market cap that is about 10% of Toyota’s. Let’s wake up before it’s too late.

    Lawrence D. Brotman
    Fort Worth, Tx.
    Reply
  •  
    Oct 13 08:55 AM
    i ewas a new investor and i also was on the mad moneys are you diversfied and took all the cramer advice all the stocks went down after i bought them i would panick i dont know who these people are calling in making big money he would refer to a stock he recomended in 1996 and be damm proud of himself in the end i got wiped out on wachovia one day steel on the wall of shame the next day steel is superman getin get out buy this no sell that if your anew guy like me just watch for the fun but get real help get in get out want to buy some nat gas stocks 2008 is the year of nat gas ha ha
    Reply
  •  
    Oct 13 04:29 PM

    I AGREE..Cramer should be on his wall of shame...Look at
    wachovia..










    cramer is such an egomamiac that he bought into the lies Wachovia told him.....OH yEAH REMEMBER REVCO???
    Reply
  •  
    Oct 13 07:11 PM
    Give the guy a break. He "changed his mind in a day" after the biggest point swing in the history of the market. Of course, he is going to give different advice after such a big drop.

    Personally, I like his analysis compared to the panels of talking heads that are afraid to take a position on anything and are all trying to sell their picks that they their clients already bought.
    Reply
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