Forced Selling Continues - Cramer's Mad Money (10/23/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Thursday, October 23.

Late-Day Volatility Continues

Forced selling by hedge funds is behind the late-day market volatility these days, Jim Cramer told the viewers. He fears we may never see a bottom until the selling comes to an end. Cramer said many hedge fund strategies have just been dead wrong, such as the betting on a Chinese recovery after the Olympics that failed to materialize. As evidence, he used the Baltic Dry Shipping Index and the Shanghai Composite Index to graphically show how much China's economy has slowed. The result of hedge funds gone bad is forced selling, he said. At around 2:45 p.m. each day, hedge funds begin preparing for the next day's round of redemptions by liquidating their ill-conceived positions. These billion-dollar liquidations, in turn, wreak havoc on the markets, causing huge late day declines and subsequent snap-back rallies. "These funds are getting killed," he said. Cramer also blamed on what's known as "fund-to-fund managers," middlemen between the large hedge funds and their clients. These managers, who typically take a 1% to 2% commission for their services, often pressure funds for immediate redemptions, forcing managers to think only for the short term. Cramer doesn't expect this trend to end anytime soon. Even worse, he expects to see a pickup in mutual fund selling about the time many investors receive their October statements and realize the magnitude of their losses. "This is when people will really start pulling their money out," he warned. Until then, Cramer said this market hasn't bottomed yet. "Until the only ones left in stocks are the ones who never sell, we won't find a bottom," he said.

A High Yielding Dividend Machine - Kinder Morgan Energy Partners (KMP)

In the hunt to find high-yielding, recession-resilient dividend stocks, Cramer invited Kinder Morgan Energy Partners' chairman and CEO, Richard Kinder to talk about his company's whopping dividend yield. Cramer explained that as a master limited partnership, Kinder Morgan must return all of its profits to its shareholders, and that's exactly what this natural gas pipeline operator has been doing. Kinder currently has a 8.6% dividend yield, and is expected to raise that yield 15.3% in 2009. Given Kinder's long history of dividend raises, Cramer said money invested in the company will double every eight years. In fact, an investment made in December of 1997 would be up 213% solely on dividend yield, and had those dividends been reinvested, the return would be a stellar 498%. "I like this stock," he said. Kinder explained that his company acts much like a toll road, collecting fees for the products that travel through it. He said the company is not affected by the price of natural gas and even has long-term through-put contracts in place to hedge against large scale declines in volume. According to Kinder, his company's goal is simply to provide nice growth on top of a nice yield. The company continues to expand its pipeline system, connecting to both new natural gas sources as well as to new areas of demand.

Nutty Stock - Diamond Foods (DMND), General Mills (GIS)

Some companies are still making money in this horrible market. Cramer questioned Michael Mendes, president and CEO of Diamond Foods to see if he's nuts for recommending this leader in the nut and snack category. "This one is working in a very tough environment," Cramer said. Cramer said the stock is up 51% since he last recommended it on Feb. 5, 2007. Mendes said his company has brought innovation and excitement to what traditionally had been a commodity business. He said it has introduced new flavors and packaging to nuts and nut snacks, and is appealing to a younger demographic for the first time. He said Diamond has positioned itself and its products as a healthy alternative to most other snacks. Mendes said his company is working hard to increase distribution and break into non-traditional distribution channels. He cited the company's recent acquisition of the "Pop Secret" brand of popcorn from General Mills as an opportunity for the company to expand and innovate. Cramer called Diamond a great company, citing its recent earnings beat by 6 cents a share as proof that Mendes' plan is working.

Mad Mail - Apple (AAPL), Google (GOOG)

Cramer told a viewer that Apple and Google are two of the best run companies in America. He said if these two companies can't rally in this market, then nothing can.

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Comments

[jmmx:]

Cramer: "He fears we may never see a bottom until the selling comes to an end."

LIKe DUH!!!

2008 Oct 24 02:33 AM

[UncleFrank:]

Yes, now he's sounding like Yogi Berra!

2008 Oct 24 04:27 AM

[scholar:]

they should be forced to sell all yhey have to i cant believve they using limit down if you gamble in this stock market you lose if thier aprofit then what limit up man were was this in sept with the bank stocks i have already lost my 250000 life savings then now thier a circuit breaker time to move to canada if i could sell my house al Quieda is rite we are assholles

2008 Oct 24 08:36 AM

[thannagan:]

"scholar" ? try "mis-spelller"

2008 Oct 24 11:05 AM

[DCW7965:]

Anyone see the program last night , Cramer quickly discussed KMP, thought I heard him say it's a good buy, but don't buy for your 401K though.... anyone else hear that? and why would that be?

Thanks

2008 Oct 24 12:23 PM

[mydoghatescats:]

KMP is a limited partnership. Instead of an IRS 1099 at the end of the year you will receive a K-1 form. A portion of the income you receive from LPs is considered by the IRS as business as opposed to investment income. The IRS will allow up to $1000/year of this type of income inside a qualified plan (i.e. tax-advantaged plans such as IRAs, 401Ks, etc.). For this reason, and the fact that these sorts of partnerships throw off dividends that are considered return of capital and so are not taxed and therefore do not benefit from being inside a tax deferred vehicle, these sorts of investments belong outside of your IRA or 401K.

2008 Oct 25 06:23 AM