Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday, August 1.
The Rant Heard Round the World: JP Morgan Chase (JPM), Freddie Mac (FRE), Merrill Lynch (MER), Washington Mutual (WM), Lehman Brothers (LEH), Citigroup (C), Wachovia (WB-OLD)
“The time to worry about the economy was a year ago,” according to Jim Cramer. On the one-year anniversary of his now infamous “they know nothing” rant about the Federal Reserve and its chairman Ben Bernanke, Cramer reflected on his much publicized plea for help. His now-famous rant against the central bank one year ago, on August 3, 2007, left its impression on Wall Street. “I just couldn’t take it anymore,” Cramer said. “The Fed was asleep at the wheel.” Subprime loan exposure was killing the banks, millions of Americans were in danger of foreclosure, and what was Chairman Ben Bernanke worried about? Inflation. Cramer wanted the discount rate, the rate at which banks can borrow from the Fed, and the Federal funds rate, the rate at which banks can loan to each other, slashed to allow these firms access to some desperately needed capital and holders of adjustable rate mortgages the chance to refinance.
Former St. Louis Fed President Bill Poole wanted to raise interest rates. “Can you imagine what would’ve happened if we’d listened to Poole” he asked viewers today. Well, the discount rate, at 6.25% on Aug. 3, didn’t get its first cut until Aug. 17. And the 5.25% Federal funds rate didn’t reach 2% until April 30, 2008. If Cramer had it his way, that would have happened much, much sooner. Here’s how the Fed’s strategy played out: Cramer said his “rant heard around the world” was meant to avoid exactly what's happened over the past 12 months. He said the staggering losses in the financial sector could have all been avoided had the Fed only listened and cut rates aggressively. The stock of the now defunct Bear Stearns fell 91.5% from a high of $118 a share before being salvaged by JP Morgan Chase, said Cramer. Other financial stocks have faired only slightly better over the past year, he noted, including Freddie Mac down 86%, Merrill Lynch down 63%, Washington Mutual down 85%, Lehman Brothers down 69%, and Citigroup and Wachovia both down 59%.
“I saw it coming a year ago when I begged the Fed to listen,” he said. Cramer said the Fed was simply offering too little too late, adding short-term interest rates needed to be cut aggressively and quickly to allow homeowners to refinance their bad loans. He said those fears were all realized, with a tide of home foreclosures, job losses mounting for the last seven months in a row and unimaginable losses in the financial sector. He asked why Congress isn't investigating the poor actions of the Fed. “My rant wasn't about saving jobs on Wall Street,” said Cramer. “It was about saving homes on Main Street.”
“How could a lunatic television show host like me, who uses hokey sound effects and animal noises, have gotten this right,” Cramer asked, “and the revered Ben Bernanke have been so wrong?” “Well, it’s simple, isn’t it?” he continued. “No one holds the Fed accountable. I think we should’ve started holding the Fed’s collective feet to the fire ages ago. And we’d better start doing it some time soon.” “In the end, they blew it,” Cramer said of the Fed, “they really did. They did know nothing. And now the trillion-dollar bill has come in, the foreclosures are off the charts, the job losses – seven straight months – unfathomable. And somehow, some way, we still revere them. Didn’t make sense then, doesn’t make sense now.”
Chesapeake Energy (CHK):
Imagine: Much cheaper prices at the pump; less fear about the environment and national security; a stronger dollar; more jobs. Cramer welcomed Chesapeake Energy co-founder, chairman and CEO Aubrey McClendon to the show to discuss his recent trip to Washington, DC and the future of the oil and energy industries. McClendon said talked with members of Congress to try to convince them to move the U.S. transportation network away from “expensive, dirty, imported oil to clean, affordable, abundant, American natural gas” in efforts to both help the environment and reduce reliance on higher-priced, foreign oil. Natural gas can cut fuel costs by 50% and is 66% cleaner than oil. “If we can do that,” he told Cramer via satellite Friday, “we can bring $2 gasoline back to the American people.” Natural gas has the potential to solve both America's energy and environmental needs, said McClendon. Natural gas is the country's best hope for energy independence, with the huge gas reserves discovered in the oil shale regions of the country, along with technological advances to retrieve that gas, he said. McClendon emphasized that many other countries have succeeded where America not. One-third of the cars in Argentina run on natural gas, while one-fourth of the autos in Italy use the fuel. Cramer again offered his support and recommendation of both McClendon and Chesapeake Energy.
But no vehicles can run on natural gas without the right technology. That’s where Fuel Systems comes in. For Speculation Friday Cramer recommended Fuel Systems as another way to play what he's called “the year of natural gas.” This company makes the pressure regulators, fuel injectors, flow control valves, electronic control systems and fuel storage systems needed to turn regular vehicles including forklifts and other industrial and commercial vehicles to run on natural gas into those that can run on compressed natural gas or liquefied petroleum gases like propane. “The company may be speculative, but it's not a pipe dream,” he said. The company supplies vehicles to some of the largest industrial and manufacturing companies in the world, he noted. With natural gas vehicles 40% to 60% cheaper to operate than their oil-based counterparts, companies will be clamoring to make the switch, he said. Cramer also mentioned the European Union's goal of having 20% of the vehicles in Europe running on natural gas by 2020 as added incentive for the company. In addition, there is an initiative in California that would create a $2.9 billion fund for the purchase of alternative fuel vehicles. In addition to Fuel Systems, Cramer suggested considering gas stocks, Canadian-based Westport Innovations, which is set to launch an IPO on the Nasdaq in the coming months, and Clean Energy.
Seeking Alpha publishes a summary of Jim Cramer's stock picks every day including: Mad Money Recap, Lightning Round and Stop Trading!
Get Cramer's Picks by e-mail -- it's free and takes only a few seconds to sign up.
Seeking Alpha is not affiliated with Jim Cramer, CNBC or TheStreet.com