Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Wednesday February 18.
In addition to the volatile market, bad advice and hasty assumptions are confusing the average investor. Cramer dedicated Wednesday’s Mad Money program to debunking widespread myths:
- Stocks are cheap: This might be true concerning market-cap, but certainly not when looking at price-to-earnings ratio. Earnings reports have been consistently terrible and companies are shrinking, losing their value.
- Throw money at the automakers: It is unlikely that large amounts of money will save the automakers because they employ too many people. There can only be change at these companies if they reform the unions.
- The banks should be lending rather than hoarding money: If the banks were to lend, they would lose money and deflation is threatening the value of collateral. So why lend?
- There is no solution to the mortgage crisis: Cramer has suggestion; cut principal. It may incur the same loss as a foreclosure, but Cramer thinks the banks could be guaranteed regulatory principal and profits from the sold home.
- Nationalize the banks: While Sweden did this successfully, Sweden is a small country with relatively uncomplicated problems. No one in the government is qualified to run a Citigroup or a Bank of America, said Cramer. He thinks the government should issue the banks a net worth certificate in exchange for a promissory note of repayment and work out their own problems.
- All mortgage insurers are able to pay those insured. Cramer thinks this is a pipe dream and the only people who believe this are the insurers themselves and the rating agencies. These stocks are a sell.
- Warren Buffett is doing okay: Actually, Buffett’s investments are suffering more than average and he is selling good holdings to back up the poor ones. Although he pays lip service to the “Buy America” thesis, Buffett is selling good American companies.
- Inflation is the problem: Actually deflation is what is killing the market.
- The Securities and Exchange Commission is inherently bad: Cramer thinks the only problem with the SEC was its former leader, Chris Cox who allowed the repeal of the uptick rule, naked short selling and didn’t notice while Bernie Madoff was robbing people blind.
- People are doing their best to solve the crisis: Ironically, it is Ben Bernanke who is the only one with his eyes open now. Cramer thinks he should be listened to. Obama and his stimulus package have been a huge disappointment. “Obama may be the biggest myth of all,” said Cramer.
When investors panic, gold rises. This was demonstrated by gold’s move from $700 to $977 since November, a run Cramer describes as “phenomenal.” Rising gold prices may make SPDR Gold Shares or Agnico Eagle Mines look more attractive, “but is it too late?” wondered Cramer. Actually since gold has a place in every portfolio, according to Cramer, it is still wise to join the gold rally. Cramer called gold the ultimate hedge which will see investors through both deflation and inflation. While a few weeks ago, Cramer recommended waiting for a pullback but after the company’s blowout quarter, he would be a buyer now. Sean Boyd discussed the company’s five new mines with production beginning at a very opportune time to catch the rise in gold prices. Boyd added the high production costs of 2008 are behind them, and Agnico will continue to keep costs low, even while opening new mines. With the new cash the company is expecting, Boyd intends to increase the dividend. Cramer says AEM is the only gold stock he is recommending.
Both fundamentalists and technicians like IBM. Cramer invited viewers to take a look at IBM’s chart. One good sign is that the stock has climbed above its 50 day moving average, and has not fallen below that level even on pullbacks. IBM has moved up since its sell-offs in October and November; this is a sign that the sellers have already left the stock. IBM keeps reaching its resistance line on pops, which chartists take as a sign that IBM is going higher. However, Cramer thinks the technical thesis is flawed, because it would discourage people from buying IBM below the resistance line, which could prevent investors from finding cheap entry price. However, the fundamentals are also strong, with a January earnings beat and raised guidance that stimulated buying. IBM will survive the recession because of its diversification into outsourcing and consulting; everyone wants to save money, and IBM will help clients do that. With recurring revenues, a $117 backlog, generous buybacks and abundant cash, IBM is a buy, buy, buy said Cramer.
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