No Harm; No Fail - Cramer's Mad Money (9/16/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, September 16.

Failure Is Not An Option - American International Group (AIG)

"If ever there was an institution that's too big to fail, it's AIG," Jim Cramer told viewers. He said if the U.S. government allows American International Group to fail, there could be a catastrophic deflation of assets around the world. Cramer said the Dow could fall 1,000 points if AIG is not fixed correctly. He said the number of individuals and businesses that depend on the company is staggering and the effects of a failure would be felt worldwide. Cramer cited AIG's Dec. 6 conference call, when the company said it had $500 million of exposure to risky loans in Europe. With bailout estimates for AIG now approaching $100 billion, Cramer argued the amount of European exposure would have to be substantially higher. (Several media outlets late Tuesday were reporting that the Federal Reserve is considering an $85 billion rescue bridge loan for AIG. Cramer said a failure of AIG would easily cause European bank failures and possibly failures elsewhere in the world. Cramer said Fed Chairman Ben Bernanke "let us down" with his decision to leave the federal funds rate unchanged earlier today. He said the move "could really screw up the U.S. economy," adding the easiest way for banks to rebuild their assets is through a lower fed funds rate. Cramer reminded viewers of the situation in 2003, when then Fed chairman Alan Greenspan took rates to just 1% in to spark growth at a time when the economy wasn't suffering from sky high energy prices or a housing crisis. "Today's move was not bold," he said.

Sabotaging Confidence

"No man has done more to sabotage the confidence of this market than SEC chairman Christopher Cox," Cramer told viewers in his "Outrage of the Day" segment. He said the SEC's laissez faire attitude towards the market has done more damage to the financial stocks than any CEO ever possibly could. Cramer said the SEC's removal of the "uptick" rule and failure to enforce other rules designed to prevent naked shorting played a key role in the destruction of the financial sector. "If you break a financial company’s stock, you break the company," he said. Financial companies use their stock to raise capital, he explained, and in the case of AIG, the shorts have destroyed the stock, making it impossible for the company to save itself. AIG's stock price would not be trading at just a dollar a share if the rules were being enforced, he said. Cramer said the company's current share price doesn't reflect the value of the assets. Instead, "it reflects where the shorts want it to be," he said. Cramer theorized that with adequate protection against naked shorts, AIG may have been able to execute a plan to sell its assets. He cited the SEC's implementation of "emergency measures" on July 15 as proof that the rules work. After the financial stocks were protected from shorting, they rallied 40%.

Eating Tough - Darden Restaurants (DRI)

Cramer talked with Clarence Otis, chairman and CEO of Darden Restaurants, about the company’s recent quarter and overall outlook. Cramer last recommended Darden on Sept. 9 as part of his "happier days are here again" thesis. He thinks that declining oil and gas prices, as well as food costs, put this restaurant manager in good position to come out of the market’s present troubles a better company. Since then, the company reported an inline quarter, at 58 cents a share, and purchased 2.1 million dollars of its own stock. Otis called the company's forecasts conservative but also said there are still challenges in the marketplace. He said the company's buying power allows it to take advantage of its scale and should help it emerge from this downturn stronger. Otis said he still sees opportunities with the company's acquisition of Longhorn Steakhouse. He said Longhorn should both add to the top line and the bottom line of the company's earnings as the promised synergies come to fruition. There is at least one positive that comes with the struggling restaurant business: competitors closing their doors. Otis said Darden has seen its locations get busier as nearby restaurants shut down. “We would expect that to continue,” Otis said, given conditions in the market right now. Cramer called Darden an excellent long-term growth opportunity and reiterated his buy recommendation.

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Comments

[omooc:]

Over BBC at 10 EDT on 9/16, the leading story is indeed the Fed bailout of AIG to the tune of $85 billion.

2008 Sep 16 10:30 PM