Cramer's Mad Money - The Market Must Be Crazy (1/14/10)

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Includes: AIG, APA, APC, CAAS, CHK, CYD, JCI, LEA, MGA, UPLMQ, WATG
by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Thursday January 14.

While the news of a 30 point climb in the Dow is welcome, Cramer wondered if there was something wrong with the market. After all, Obama announced a new tax on TARP recipients, retail sales and unemployment numbers were worse than expected, healthcare reforms loom, credit card defaults don't seem to be bottoming and natural gas is being hit.

Why are stocks up? Cramer's theory is that "while not great, business is a heck of a lot better than what the data says or how the bears at the mic spin it. And I think we know it is getting better, slowly but surely, everyday.”

Auto sales and retail are slowly improving. While unemployment is still high, it isn't increasing dramatically, healthcare reform will probably be toothless and current problems convince the Fed to keep interest rates low. Since the bull market has been charging forward since March, Cramer thinks it is ultimately right and the bears are wrong.

CEO Interview: Michael Waterford, Ultra Petroleum (UPL), Chesapeake (NYSE:CHK), Anadarko Petroleum (NYSE:APC), Apache (NYSE:APA)

Natural gas stocks have been on the way up as the clean, plentiful and energy efficient fuel is growing in popularity. Cramer wondered why Ultra Petroleum (UPL), up only 15% since August, has been lagging behind its peers Chesapeake (CHK), Anadarko Petroleum (APC), and Apache (APA), whose stock prices are increasing by leaps and bounds. Ultra Petroleum has every reason to excel; 95% of its reserves are natural gas, and it is a logical takeover target, given predictions of more M&A activity in the sector.

The company has an average working interest of 50% across Wyoming's Pinedale Anticline. Although conservation policies created some inconvenience, drilling is now going forward in the region. Ultra Petroleum is buying an additional 80,000 acres of the valuable Marcellus shale in Pennsylvania and Appalachia for a total of 250,000 acres. This purchase has yet to be reflected in the company's stock price. Production has increased by 27% in the third quarter; “That makes it a growth stock with fabulous margins," said Cramer.

Waterford confirmed Cramer's bullish thesis on UPL, and said its reserves and production have improved substantially in the past few years, and its cash flows are around 70%. He added that he is excited about the purchase of more acreage of Marcellus shale, not least because tax rates are lowest in the region. Addressing environmental concerns about natural gas drilling, Waterford said new technology precludes any risks of polluting the planet. Waterford sees a good potential that Washington will get behind natural gas, because the alternative fuel provides a "win-win" solution to the energy problem.

Sell Block: China Automotive Systems (NASDAQ:CAAS), Wonder Auto Technology (OTCPK:WATG), China Yuchai International (NYSE:CYD), Lear (NYSE:LEA), Johnson Controls (NYSE:JCI), Magna International (NYSE:MGA)

Cramer would put most China automotive stocks on the Sell Block, especially China Automotive Systems (CAAS), Wonder Auto Technology (OTCPK:WATG) and China Yuchai International (CYD). While the auto business in the U.S. is making a slow and steady recovery after making sharp cutbacks, Chinese auto stocks are caught in yet another bubble, inflated by government stimulus, and will pop before long.

The widely held belief that China is "an auto and auto parts utopia" is "dead wrong." While the stocks have run an average of 400% since 2008, their fundamentals are not as strong as U.S. counterparts Lear (LEA), Johnson Controls (JCI) and Magna International (MGA). The Chinese stimulus for autos is creating "artificial demand" which is "going to go away." However, Cramer thinks American auto companies have further to run.

Senator Ted Kaufman on Regulation, AIG (NYSE:AIG)

Cramer blames the laissez faire policies of the Bush Administration for the collapse of Bear Stearns, Lehman Brothers and AIG (AIG). While conventional wisdom says lack of regulation is good for business, in the long run, a lack of adequate government oversight can cause disasters like the current crisis. Senator Kaufman discussed areas that require reform, including "naked access," given when traders licensed to operate on exchanges charge high-frequency clients for unlimited access to the exchanges. The Wall Street Journal compared the practice to “members of an exclusive club charging others to use their pass.”

Senator Kaufman would also like to reinstate the uptick rule, which requires short sellers to wait for an uptick in a stock's price before selling it short. Cramer has long been passionate about this issue and blames the repeal of the uptick rule for the relentless destruction of stocks by aggressive short sellers.

Cramer applauded Senator Kaufman on his legislative goals and called him "One of the smartest, most savvy legislators in Congress."

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