Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday December 22.
Analysts are busy trying to get their downgrades in before the last week of the year, a week during which the unwritten rule is not to make downgrades, which can hurt hedge funds. As a result, the analysts are making the mood on The Street more bearish this week it should be; USB downgraded gold stocks, a move that makes no sense to Cramer, because gold has already fallen. He fails to see the logic of Raymond James’ taking down EOG Resources, Southwestern, Apache and W&T Offshore, since winter is the prime time for natural gas, especially a season as cold as this one so far. Even though U.S. Steel tumbled from $196 to $34, Deutsche Bank still took a hatchet to the stock as well as Darden, which just reported a strong quarter. In addition to downgrading the entire semiconductor sector, J.P. Morgan also went after Nordic American Tanker, General Maritime and Eaton. Nordic, a Cramer fave, fell 6% on the news, and Cramer would buy on the decline.
While cheaper gas and lower interest rates may make things seem better, they are not. Troubled credit is “the dark side of the road,” and on Goldman Sachs’ conference call, Chief Financial Officer David Viniar said the fall of investment grade bonds was so dramatic one in five would default and 60% of all commercial mortgages will default. He added credit indices have declined 34% in the fourth quarter alone. The result? Banks don’t want to lend because it is far too risky. The consumer is also plagued by the fear of unemployment which further increases the risk. Unless Obama can prop up financial institutions like JP Morgan and Bank of America, they will take a hit as they hoard their cash and struggle for survival. Cramer would like to see a TARP for Main Street which would guarantee more debt and offer cash to banks at lower interest. This kind of rescue is needed to create a rally once again in the market.
The thesis that biotech stocks are ideal in a recession and are the darlings of institutional investors during tough times may be reason enough for an upside for Ely Lilly. In addition, the bad news of patent expirations between 2010 and 2015 is already priced into the stock; the good news that there will be 10 Lilly drugs in Phase III trials by 2011 is not priced in. Lilly acquisition ImClone expects to receive expanded indications for its cancer drug Erbitux, which like Genentech’s Avastin, may generate huge revenues. While Cramer usually shies away from technical analysis, he says Lilly has the best chart in the sector. The company is likely to have $3.4 billion in cash by 2009 and has kept its 42 year tradition of upping its dividend, which yields a generous 5.2%. While conventional wisdom says biotech does poorly when a Democrat is in the White House, conventional wisdom was wrong in 1992 when Bill Clinton was elected, and Cramer thinks it will be wrong again when Obama is sworn in.
Cramer has a message for incoming SEC Chair Mary Schapiro: abolish Ultrashort ETFs. Every dollar invested in these funds behaves like two and takes down a particular sector with double the ferocity of regular shorts. If these ETFs were good investments, that would be one thing, but the numbers speak volumes; The Ultrashort Real Estate Proshares ETF is down 48.3% for the year, and the UltraShort Financials is down 49.3%. How can this be? These ETFs are more vulnerable to volatility, which can undermine their long-term performance. Cramer says the only reason these funds exist is to get around rules that would ordinarily require an investor to borrow from a broker to short with credit or otherwise to have a certain amount of reserve capital. Sidestepping these rules is not worth the damage these UltraShort ETFs do to the economy, according to Cramer.
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