Cramer's Mad Money - BHP Fitting the Billiton (2/27/09)

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Friday February 27.

Game Plan: Weathering the Storm, McDonald’s (MCD), Ralcorp (RAH), Treehouse Foods (THS), Wal-Mart (WMT), Procter & Gamble (PG), General Dynamics (GD), Lockheed Martin (LMT), IBM (IBM)

Even as things look close to hopeless, there are still ways to make money in this market. The first thing Cramer would do, however, is to shore up enough cash needed to make it for four and a half years. He would even sell stock to do this, and would look for rallies in the coming week to provide selling opportunities. A cash position is not a bad idea, nor is dividing investments between gold, Treasuries and Municpal bonds. While he doesn’t often recommend shorting names, it might be an idea as the market declines. Cramer does expect a recovery, but until then, he would buy companies producing things the consumer and the government absolutely need: McDonald’s, Ralcorp, Treehouse Foods, Wal-Mart and Procter&Gamble. After Obama’s cost-cutting shook the healthcare industry, Cramer fears for the defense sector and is wary of owning General Dynamics and Lockheed Martin. However, once in a while, a rally does take up individual stocks, as in the case of McDonald’s and IBM last week. Cramer would also include gold and oil in every portfolio.

Speculation Friday: Allos Therapeutics (ALT), Celgene (CELG), Cephalon (CEPH)

Even in hard times, a little speculation can build wealth in increments. Cramer thinks Allos is a great speculative small-cap stock which has as its catalyst the expected Food and Drug Adminstration’s approval of its orphan drug called Pralatrexate, or PDX, which treats peripheral T-cell lymphoma. Orphan drugs are those that treat rare conditions and are usually given fast-track FDA approval and have little or no competition, since there is no other treatment for this type of T-cell lymphoma. Obama’s Medicare reforms may hurt other companies, but not Allos, and American drugs in Europe usually fetch at least as much if not more than they do in the U.S. PDX has been shown to work in cases where other treatments have failed and for a longer period of time. FDA approval is expected by the end of June and the drug could be worth as much as $400 million. The company could get a takeover bid from Celgene, Cephalon or another company. Cramer would buy Allos after its earnings report on Tuesday March 3, and only at $6 or $7, but no higher.

Obama-proof BHP Billiton (BHP)

After the beating the healthcare sector took following President Obama’s Medicare reform, Cramer is searching for Obama-proof stocks. BHP Billiton fits the bill, since the Australian company is expected to reap substantial benefits from China’s expected recovery and in particular, its $600 billion stimulus plan. The company is the world’s top producer of coking coal used for steel production, the second-largest of iron ore and the third largest producer of copper and nickel. The expected decline in iron ore sales in China is expected to reverse, thanks to government intervention.; sales are up 25% since October, and hot-rolled steel sales are 25% higher since November. Chinese, unlike Americans, are buying homes, which of course, require raw materials to build; new home sales have doubled since last year. Even though BHP missed its earnings, cash flow is up 74% and the dividend has increased 41%. The stock is down from $95 to $36, but the company’s dividend is safe and has loads of cash and a strong balance sheet.

Mad Mail: Permian Basin Royalty (PBT), SPDR Gold Shares (GLD), BP (BP), Johnson & Johnson (JNJ)

Cramer said that while PBT is a good stock and the company has a lot of oil, other oil stocks were down; “I told people to pay around $8. You have to listen to me.” Cramer explained that SPDR Gold Shares keeps buying gold and is driving all the purchases. He suggested letting gold pull back before buying more. While Cramer says he thinks BP can pay the dividend because he believes oil is going higher, he suggests monitoring the stock. Cramer defended his statement that Warren Buffett is “selling American” and not “buying American” when he sold Johnson & Johnson.

Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and his Stop Trading! Picks.

Get Cramer's Picks by email-- it's free and takes only a few seconds to sign up.

Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com

Comments

[Leonard C.T...:]

THE VULTURES ARE CIRCLING
I enjoy all your information on stocks and the economy. I want to thank you for all your help.

To Seeking Alpha:

I would like to share a letter and article I sent to our local newspaper. Please e-mail your thoughts about this very important matter and if you can help us (you and me and our posterity), the little people, by increasing the sound of our voices.

Courtenay EdelhartC/O The Bakersfield Californian P O Box 440 Bakersfield, CA. 93301 Ph. 661-395-7361 or 661-395-7500

Thank you for your coverage of CSUB Obamaeconomic program the other night. You were correct in stating that a consensus was not reached at the event last night. I do not think that was the intention of our host. The US Congress cannot bring its self to a consensus either. Professor Evans who you quoted as saying, "We are going to have to live with large deficits for a long time, there is no other way." I disagree with that statement. I believe there is another way. I have over 40yr of being in the financial world. President Obama and Professor Evans are relying on Keynesian Economics. John Maynard Keynes created these economic policies in the 1930s. Many economist of his time disagreed with him, but it turned out he was correct, in his time, in an inefficient way. His policies, put governments into massive debt, more government programs are created. Over the years, larger and larger governments are developed. His policies work but he did not leave a handbook behind on how to correctly slow down the economy when it is so strong that it is creating an economic crisis. Our economy is in economic crisis. Not from being too strong but from being too weak, after a very strong period. President Obama is once again applying Keynesian Economics to the problem. Our economy has changed tremendously since the Great Depression. The economy has become so large and electronically sophisticated, that we need new methods of correcting economic crises. People have become more aware of credit use, which expands the money supply without government spending. The Government has to have the right policies in place at the right time in the economic cycle for the economy to work efficiently. The old ways do not work any more. We have to try something different. What the government is doing is not working! I have developed new policies that correct economic crisis, such as recessions, inflation, and depressions, in a more efficient way. My desire would be for you to read the Alternative Economic Stimulus Plan. It is not over a 1000 pages like President Obama’s Economic Recovery is. It is posted at americansolutions.com Put "happyashell" in the search box. There are several articles, I would start with THE VULTURES ARE CIRCLING. There I hope you will find answers to the questions. How did we get ourselves into this economic crisis? How will we get ourselves out of this economic crisis? I believe that unless Congress hears from the people we will continue reliving history with gloom, boom, and doom economics. Sincerely, Leonard C.Tekaat

THE VULTURES ARE CIRCLING

The value of our homes has been the backbone of our money supply. If you presently owe more than your home is worth the vultures are circling.
The bankers and investors servicing your loan want you to make payments on a loan that may be more than what your home will sell for. The vultures are waiting until you default on your loan, to pick the economy’s bones clean.

The housing bubble has burst and prices are coming down. This has led to federal action to stabilize and re-inflate the housing market. The government (your representatives in Washington) should change the tax policy for bank business losses, so banks are motivated to lower the principle balance of your loan. We should support President Obama as he lowers interest rates and pays banks or investors one-half of the amount that is forgiven on each home loan.

If interest rates are lowered low enough, the mortgage reduction policy is the only part of his plan we may need. We may not need that policy either, if the banks and investors come to realize that marking down the mortgage is in their best interest, tax and capital wise. Let me explain the capital advantage. When a bank has a non-performing asset the value of the asset decreases more than if the bank discounts the mortgage. After discounting the asset's value, the asset becomes a performing asset and is worth twice as much. An investor will pay more for a performing asset than a non-performing asset. If a bank waits and allows the property to go to foreclosure they can now sell the collateral, perhaps at market value, but if the sale price does not cover the cost of foreclosure and lost interest payments, (unless the mortgage is insured), the bank not only loses money but a customer forever. seekingalpha.com/artic...=article_1b_artic…

The homebuyers, our elected representatives, the investors, the bankers, we all have equal responsibility for this economic crisis. We must all understand this business fact. That until the excess amount of the mortgage is forgiven, in some manner, the real-estate market and the economy will not recover. The economy will remain in recession and could move into a depression.

To encourage banks, investor and servicing companies to lower principal amounts, the policy of claiming a business lose, when banks or investors write down the value of an asset, should be changed. (Asset meaning your mortgage) The business loss should not be allowed until the amount of the mark down is passed through to the homeowner.

Housing Investors are buying 75 % of the houses that are selling in CA., NV. AZ. FL. The foreclosed properties are selling because the loan amount to buy the house is equal to the value of the home. We must send the vultures packing by changing the policies our economy is guided by.

STABILIZE YOUR HOME’S VALUE

All across this nation people have seen their home values decrease. There are three things that must be done to maintain the price of your home.
1. Enact the Zero Inflation Taxation policy. This policy will increase confidence of investors to make long-term money investments, creating a market for 30yr mortgages. It will automatically change the income tax, as economic conditions change in our economy, from recession to the inflation cycle.

2. Interest rates are too high. All through the 1930s the banks kept interest rates 400 to 600% or more above the inflation rate, making the Great Depression worst than it should have been. (Crestmont/Reach.com) After World War II, interest rates have not been over 100% above the CPI. Currently mortgage interest rates are 750% above the CPI, and increasing, as deflation increases. We must create mortgages that have interest rates that are no more than 300 percent above Consumer Price Index. Maintain mortgage interest rates with Adjustable Rate Mortgages at no more than 50 to 100% above the C.P.I. Banks cannot lower their interest rates low enough because of profit margins and depositor insercurities. The U.S. Treasury is a not for profit government agency and does not have these concerns. It would borrow the money from the Fed and would fund these mortgages, at cost, until the banks have the confidents to lower their mortgage rates and investors start investing in mortgages securities. This would stimulate the economy. By decreasing mortgage rates by 50%, mortgage payments would decrease. A $1500.00 monthly interest mortgage payment would decrease to $750.00. That is a $750.00 stimulus check every month for 30 yrs. Nov.’s 2008 C.P.I. was a negative 1.7%. A 3% starting mortgage rate would be 470% above the deflation rate. This policy will make housing affordable. It will bring more buyers into the market and eliminate the foreclosure problem. With safe guards included, the chance of another housing bubble occurring is practically nil. When the economy is correctly guided it will produce more tax revenues for federal, state and local governments without raising taxes, as the California Congress has done. The tax increases can then be eliminated.

3. Call! President Obama 202-456-1111 Fax [phone] Treasurer Tim Geithner Fax [phone] Opinions? www.bakersfield.com/ or www.contactingcongress.../

Please blog this letter and articles across the country.


Home prices are decreasing all over the country. The news has been covering the economic problems. How about a solution? President Obama plan is foreclosure plan is destine to fail. It does not take into account that most homes in CA .NV. AZ, FL. has decreased in price by 40% or more. The rest of the country an average 20 to 30%, His plan only allows for homes to be 5% underwater. The real estate market will not recover until the other 90% of homes that are more than 5% underwater have their excess mortgages adjusted. They cannot be sold or brought until they go through foreclosure or the banks and servicing companies forgive, in some manner, the excess portion, of the loan. I present one idea in my ALTERNATIVE ECONOMIC RECOVERY PLAN. You can read it at www.americansolutions..../.

The economy needs the real estate market because our homes are the backbone of our money supply, just like gold was many years ago. I do not want to re-inflate the economy. The reality of the modern world is that we no longer barter to exchange our goods and services. We use paper money or credit. They are both based on promises. If it is credit that you use as a means of exchange, the collateral must maintain its value over a long period of time, similar to gold. Our homes have served this purpose for many years, until people changed policies to create more credit available. Human history has shown us that the borrower must be at risk of losing something of value, as much as the lender, and the terms of the loan must be affordable. This is not the case of the people who are losing their homes. The lender made the loan unaffordable, because of the change in the interest rates and the homeowners looks at the house as having no value, only an excessive burden. I realize there are a lot of people that should not own their home until they are educated and are more financially able to.

On our Federal Reserve notes read IN GOD WE TRUST it should read IN THE FED WE TRUST. When the government with its misguided policies and the Fed with its interest rate policies cause the economy to be guided in the wrong direction, they are responsible. If you divert a stream and it does damage to people, you are responsible for paying for the damages. Since this is a government by the people, I guess we are all responsible. The government, which gave its power over the money supply, to the Fed, screwed up, period. It is not the responsible homeowner's fault if their mortgage is underwater. A lot of people put 20% or more down and they are in financial trouble today because of the government and the Fed.

It does not do anybody any good, except the people who created the problem and got out; to have housing prices go up as fast as they did during the housing bubble. It is better to maintain the economy at a pace that allows as many people as possible to participate in the economy, so they can provide for themselves. What we do not need is for the economy to slow down so much that people lose their jobs and become government dependent, as the millions of the unemployed are doing. When the Republicans want to increase people’s disposable income, they want to lower taxes and reduce regulation. When the Democrats want to increase people's disposable income they want to deficit spend, create jobs and government programs and increase regulation. Both of these policies reduce government revenues and increases the national debt and the government's deficit, in the beginning of the recovery cycle. Lowering interest rates does not cost anything and increases more people's income, by a greater amount, much quicker. This policy puts people back to work faster and the problem does not get out of control. The government's liabilities are decreased. We do not have to increase taxes to pay down the national debt or to decrease the deficit. With the correct policies enacted the chance of another housing bubble occurring is practically nil.

What is recession? A recession is caused by excessive supply created by over production. Recession is also created by insufficient demand because of insufficient available cash purchasing power. A Recession is also credited by the inability or desire of people to obtain credit because of a lack of confidence in the future or it has become too expensive or restrictive to obtain credit. This causes an insufficient amount of money value in the economy, resulting in people not having sufficient cash purchasing power to exchange for new produced value. It feeds upon itself further decreasing economic activity every time some one loses their job. The idea is to increase economic activity so people can go back to work and take care of themselves and their families, increasing their purchasing power there-by increasing demand. A majority of Americans enjoy their freedom and want to earn a living without government interference. If you are going to say people abused the credit system. I agree with you. Credit should be used in a correct manner to increase consumption or increase production of goods and services. Credit should not be used to produce or increase inflation. The economy must stay in balance to provide for as many people as possible. A home should be valued for the protection it gives you from the weather and the security it gives your family.

On 2-24-09 the Fed Chairman Bernanke, appeared before the Senate Banking Committee. Senator Bob Corker stated during the meeting, “He had not yet heard a definite way out of the economic crisis. That it seems to me that we are continuing to do the same thing as we have been doing. That is, giving large amounts of money to the banks, to capitalize them and nothing happens that benefits the economy.” I agree!
The Fed is currently acting as a bank, regarding commercial paper. This morning in his question and answer session the Chairman stated that, "Because the banks were not confident enough to loan businesses money, the Fed, by paying the banks .25% interest on their deposits, the Fed was borrowing the money from the banks and lending it to the large corporations. I believe that the solution to the economic crisis is that the same policy should be applied to the housing problem. If the ARM mortgage starting interest rate is low enough to jolt the economy back to life, the toxic securities will become valuable again. The new mortgages will become performing assets. The banks will make huge amounts of money rewriting the mortgages and servicing them. Thereby becoming profitable and help capitalize them. We are currently trying to capitalize the banks by infusing the money directly into them. This policy is wrong because the collateral is losing value. This situation means the banks will need more and more capital to remain viable. The value of the collateral must be stabilized first, for the banks to be confident enough to lend money against it.

I am the author of INFLATION THE ECONOMY KILLER (Amazon.com). I had to reverse my policies for inflation control to correct the currant economic crisis. High inflation and deflation are both economic crisis, which are created when the economy becomes unbalanced. The policies to correct them are opposite of each other. Our concern now is the deflation that is occurring in the real estate market, mainly the housing sector of the economy. The housing sector is so important because it is the consumer and household formation, that creates 75 to 80% of the economic activity in our economy.

I want you to ask yourself three questions?

1. What is the first thing the Fed does to stimulate the economy? Answer: Lower interest rates, this permits people and business to refinance their debt at a lower rate of interest, which in turn lowers their monthly payments, freeing up monthly income, which increases their disposable income. With more disposable income, people have money to spend on other things, other than interest payments.

2. Why did it not work this time? Answer: Collateral prices were going down. Banks or investors cannot refinance people's loans until the price of the collateral stabilizes. When the banks did not follow the Fed's lead of lowering interest rates it made the deflation worse.

3. How do we solve this problem? Answer: The banks cannot lower their interest rates low enough because of the risk factor of the collateral's price going down. They have to make a profit and pay a high enough interest rate to keep their depositors satisfied. The US Treasury, which is a not for profit government agency, can borrow the money from the Fed, just like the banks do, and fund the refinanced mortgages, at near cost, until the collateral's price stops decreasing and investors start investing in the new mortgage securities. The Treasury would receive the cash flow to fund more mortgages. When the economy is up and running again, the Treasury would sell the mortgages to investors. The banks and other financial institutions would arrange these new loans and mortgages or modification agreements.

It has always been the 90% of the population who spend their money and pay their bills that brings the economy out of the recession. When their disposable income increases and they are able spend money on household goods and services, big ticket items, autos and trucks ect.

I have petitioned the U.S. Congress to hold open meetings to discuss and debate the Alternative Economic Stimulus Plan. As of today I have not heard back from Congress, about this basic right of American citizens to petition their government. My Plan does not rely on a trillion dollar government Jobs Program. In fact the Alternative Stimulus Plan will not cost the American people anything over time. The Alternative Stimulus Plan also includes a policy that will help those people that owe more on their mortgages than what the house will sell for. This policy is outlined on the web site.Free info. americansolution.com Search articles/comments by “happyashell”

Leonard C. Tekaat is a retired economic Analyst, Financier, Investor, businessman, author, and a former Candidate for California Congress. He has experience in the financial world of over 40 years.

If you agree with any part of the plan, write or telephone the newspaper, your friends, Congressman or anyone else that will help spread the word. You can also send a copy of this letter to the editor.

Maybe if the little people stand on each other shoulders and shout loud enough, we will be finally be seen and heard!

Copyright by Leonard C. Tekaat All rights reserved.Contact information: E-mail [e-mail]/ or [e-mail]/

PS Be sure you read the other articles and comment to get the complete picture.



.

Mar 05 12:18 PM