Cramer's Mad Money - We Are Not Japan, We Are Not the Weimar Republic (1/11/11)

by: Miriam Metzinger

Stocks discussed on the in-depth session of Jim Cramer's Mad Money TV Program, Tuesday January 11.

We Are Not Japan, We Are Not the Weimar Republic

While those who don't learn the lessons of history are doomed to repeat errors, there is a destructive habit on The Street; to throw water on a market on fire with faulty analogies to disastrous economies. Two favorite invocations when stocks heat up are to Japan's Lost Decade and the Weimar Republic. Cramer explained why neither of these analogies fit the U.S. economy.

During the credit crisis, bears were comparing the situation in America to Japan's Lost Decade when Japan's economy spiraled into a long decline that led to a collapse of the financial system when banks were "zombies" and growth was stagnant. However, "we are not Japan," Cramer said. American businesses cut inventories and took on painful measures to stem the crisis. Consumer spending in America was relatively strong, even during the crisis. "Japan never started spending and we never stopped." The Japanese government felt it necessary to prop up even the worst banks, whereas the American government let Lehman Brothers and Bear Stearns fall. The Japanese population is dwindling and aging, while America's population is vibrant, growing and is relatively younger than Japan's.

The Weimar Republic analogy is the ultimate hyperinflation horror scenario, but it doesn't apply to America. Cramer says you can't get hyperinflation from the current level of increases in commodity prices and the slight rise in the Treasury yield. In any case, an economy cannot go from deflation to inflation without a period of growth in between. Bears use these historical fears to "up the emotional ante and create panic." Cramer urged viewers not to be swayed by the doom and gloom scenarios.

CEO Interview: Rick Van Nieuwenhuyse, NovaGold (NYSEMKT:NG), Eldorado (NYSE:EGO), Agnico Eagle Mines (NYSE:AEM), Barrick Gold (NYSE:ABX)

Cramer continued to emphasize the importance of owning gold, and with the yellow metal down, it is a perfect time to add gold to a portfolio, although the sale will not last. While he has recommended Agnico Eagle (AEM) and Eldorado (EGO), he devoted a segment of Mad Money to discussing a speculative gold play which Cramer owns for his charitable trust. NovaGold (NG) is a company that is the most levered to the price of gold, so investors who think gold is going to $2,000 should buy NG. While the company was criticized for spurning a bid from Barrick (ABX), the company has doubled its reserves since the rejected bid and is in a profitable mining partnership with Barrick, a company with a "depth of knowledge and expertise," said Rick Van Nieuwenhuyse.

Cramer said "NovaGold is the largest repository of gold and maybe even copper in the free world that can be mined without government interference." Rick Van Nieuwenhuyse agreed with Cramer's statement, and with a large number of reserves located in Canada, the company avoids the kind of geopolitical risk other miners face. The CEO is bullish on the company's present and future in China, since it has plenty of gold and copper to feed Chinese demand. While NovaGold is speculative, Cramer declared it is "the greatest call on gold...this is the real deal."

Night of the Living Dead Stocks

Speculation is an essential part of every portfolio, but Cramer emphasized the need for solid speculative plays, not zombie stocks that are listed on exchanges but are not really stocks. It is essential to clear up a common misconception that every stock listed on an exchange is necessarily buyable. America is notoriously lenient about allowing stocks to remain on exchanges even as the companies are headed for bankruptcy and even as the stock is approaching total worthlessness. Why doesn't the American government cancel these bad stocks? Because there is too much money to be made from investors looking for a half-baked comeback story and from volumes generated by these zombie stocks.

The fact that GM's common stock was allowed to stay listed on exchanges as it was being taken over by the government was scandalous. Fannie Mae and Freddie Mac continued to trade as it was demonstrated that these were not really stocks. Until the government starts doing the right thing and puts a stake through the heart of zombie stocks, Cramer urges investors to wake up from Wall Street's night of the living dead stocks.

Technicals versus Fundamentals

Cramer urges investors to do an hour of homework a week for each holding in a portfolio, and while the fundamental facts are the best indicators of where a stock is headed long-term, technical analysis should not be ignored. The best investment approach is to integrate technical and fundamental analysis, since the latter gives a full picture of the health of a company and the former can give clues on what money managers are going to do next. While the fundamentals of a stock usually win out in the long-term, knowing where Big Money is likely to drive a stock is also important to know, and can be predicted by reliable technical analysis.

The Magic of the Tech Product Cycle: Qualcomm (NASDAQ:QCOM), Ciena (NASDAQ:CIEN), Juniper (NYSE:JNPR), F5 Networks (NASDAQ:FFIV), Cirrus Logic (NASDAQ:CRUS), Akamai (NASDAQ:AKAM), Skyworks (NASDAQ:SWKS), Verizon (NYSE:VZ), Apple (NASDAQ:AAPL)

After a decade in the doghouse following the bust, tech is finally back and is getting the respect it deserves. What is driving the sector? Product cycles. Innovation is back and is changing the way investors trade tech, which was too often treated like a commodity. The assumption was a hot new product would cool off and inventories should be watched carefully. The new story in tech is that product cycles can spiral into long-term growth stories and the sky is the limit when it comes to demand.

It isn't just the faces of tech, like Apple (AAPL) and Verizon (VZ) that are getting attention, but infrastructure plays like: Qualcomm (QCOM), Ciena (CIEN), Juniper (JNPR), F5 Networks (FFIV), Cirrus Logic (CRUS), Akamai (AKAM), Skyworks (SWKS). Even though consumers do not see the products these companies make, the infrastructure is there and is powering the hot gadgets. As companies try to leapfrog each other in the game of increased capability, the demand for advanced tech infrastructure will continue to grow.

Cramer declared a new era for tech; "Never have I seen so many tech cycles happening at once."


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