It Could Happen - Cramer's Mad Money (9/26/08)

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Friday, September 26.

Up the Limit - JPMorgan Chase (JPM), Wells Fargo (WFC), US Bancorp (USB), Bank of America (BAC)

There is a new problem looming on the horizon while Congress tries to agree on a plan for economic recovery. Cramer said fears linger in the markets, large corporations and institutions are pulling their money out of bank money market funds, in favor of government backed Treasury bills. This move is slowly robbing banks of the capital reserves they so desperately need. Cramer called it "an invisible run on the banks," one that has no lines in the lobby but pushes banks to the breaking point nonetheless. Cramer wants FDIC deposit insurance of $100,000 limit upped to as much as $2.5 million, with additional protection available at a percentage cost. Bank runs are taking place under the radar, he said, and this is the best way to stop it. Even corporate and trust accounts need protection. Chief financial officers, lawyers, the wealthy – they’re all pulling their money from savings accounts and asking for T-bills. As a bank’s deposits evaporate, so too does its ability to lend and correspondingly make money. This will continue until Congress agrees on a bailout deal. “The lack of confidence inspired by Lehman’s demise, the general poor health of many banks, this is going to turn this into an intractable moment,” Cramer said, “if someone in the government doesn’t start pushing for more deposit insurance.” The FDIC should be pushing Washington for a higher guarantee. Otherwise more and more banks will go out of business, leaving only what Cramer’s calling “superbanks” like JPMorgan Chase, Wells Fargo, US Bancorp and Bank of America. Cramer said it's a national embarrassment that no senator or congressman is paying attention to what is happening. Only by stepping up FDIC deposit insurance limits, said Cramer, can confidence be partially restored and the exodus of capital slowed.

It Could Happen

"We are truly in dire straits here people," Cramer told viewers. He said the failure of Congress to pass the bailout plan is causing the banking system to fall deeper into trouble. The markets, he said, are completely out of control. The situation right now is so bad that a little Cramer calculus showed the Dow could drop to as low at 8,378 – a 2,768 decline – if Paulson’s plan doesn’t make it through Congress. That’s why this week’s Game Plan, just like last week’s, is a call to viewers to keep selling their stocks into any strength and prepare for the worst. Deal or not, we’re still most likely going to see a recession, so you want to preserve capital at all costs. The only thing a congressional agreement really brings us is avoidance of another Great Depression. Just in case you think this bailout is only about saving Wall Street, think about this: 100 million Americans – about half the adult population – owns stocks directly or indirectly through mutual funds or retirement plans. No deal means your pension fund, 401(k), IRA, 529 college savings all plummet in value. Cramer can’t emphasize enough how important Paulson’s plan is to boost the credit markets – the economy’s fuel – force money back into stocks, bonds and the like, and get economy moving again.

Hitting the BRICs

Even outside the U.S., circumstances are dire. BRIC – Brazil, Russia, India, China – they’re all hurting. Chinese growth has collapsed, India’s inflation is out of control, foreign capital fled Russia when it invaded Georgia, and Brazil, while still a robust market, is a victim of the U.S. slowdown. “BRIC, which was once the driving force of global economic growth,” Cramer said, “is now an actual brick around the neck of the world economy.”

It’s Not Just Wall Street

The industrials, telcos, techs, oils, any company that relies on economic growth, will get hit hard if the Paulson plan falls through. So “it’s not just the stocks of Wall Street,” Cramer said, “it’s the stocks of Main Street that are about to be crushed.” Therefore, keep on selling into any strength. Deal or no deal, now’s the time to play defense.

Taking on Shelby

Sen. Richard Shelby (R., Ala.) and his supporters are Cramer’s "Outrage of the Day". Cramer said Shelby's opposition to the government bailout plan could do more to destroy the economy than any other person in history. Cramer took issue with Shelby's recent comments that it would be shameful to bail out Wall Street, a system that the senator said is littered with greed and outdated regulations. Cramer called the comments ludicrous, arguing that it would be shameful to destroy the country's financial system and economy by not passing a financial recovery package. Cramer reminded viewers that without the plan, the unemployment rate could rise from 6% to 7% to as much as 20%, and the Dow Jones Industrial Average could plummet almost 3,000 points. He said the problem does not just lie with Wall Street, and will quickly spread to every sector of the economy if immediate action is not taken. "The academics just don't understand the problem," said Cramer, who ridiculed those who do not have first-hand experience of how Wall Street works or the severity of the crisis. Cramer said just about everyone he knows is silently pulling money out of banks and putting it into Treasuries. He predicted we could see another five to six more bank failures next week if a bailout plan does not get passed.

A Lesson in Speculating

Cramer set the record straight when it comes to speculating on stocks. He said that people who speculate on bank stocks, hoping for a quick spike or takeover, are just dead wrong. When it comes to bank stocks, Cramer said it's the debt that matters, not the stock. "The common stock is just a tease," he said. In a normal takeover, Cramer explained, it's the bond holders, or bond bullies, that often come out ahead of the shareholders. However in a bank failure, it's the government who wins and the debt holders are often wiped out. Cramer told investors to speculate the smart way by following the rules he's outlined in his book "Real Money." Speculating on stocks with single-digit stock prices can cause huge losses, he said. And never speculate on takeovers where the fundamentals are not sound. "How much can you lose?" Cramer asked. "100% of your money." If you can’t read a balance sheet leave investing to professionals.

Riding Out the Business Cycle - Cypress Semiconductor (CY), Sunpower (SPWR)

Cramer talked with Dr. T.J. Rodgers, president and CEO of Cypress Semiconductor, to find out how the spinoff of solar company Sunpower will affect the stock going forward. Rodgers said Cypress still trades as a combined company today, but he looks forward to spinning off the $3 billion solar subsidiary to once again focus exclusively on semiconductors. He said that investors fall in and out of love with solar stocks on a weekly basis and he'll be glad to see the volatility ease. Regarding Cypress' remaining business, Rodgers said that he is seeing the market slowing down for semiconductors, and acknowledged times are tight at Cypress. However, he said that he's seen 23 such downturns and this one is not the worst of them. Semiconductors, he said, are still a part of just about everything and he can't wait to get started on "the next big thing." Cramer told viewers to stick with Rodgers and reiterated a buy on Cypress.

Correction – Rockwell Automation (ROK), Rockwell Collins (COL)

In a correction to last night's episode, Cramer said his sell recommendation of Rockwell Automation was intended for Rockwell Collins.

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Comments

[kenrun:]

Cramer says "We are truly in dire straits here people... failure of Congress to pass the bailout plan is causing the banking system to fall deeper into trouble. ... Dow could drop to as low at 8,378 – a 2,768 decline – ...Deal or not, we’re still most likely going to see a recession, so you want to preserve capital at all costs."

A month ago Cramer said we tested the bottom, the bottom was in and was recommending buy buy buy, now, he is saying the sky is about to fall. A little bit late, isn't he, and not until he had his followers investing and losing their money. Now he wants you to preserve capital....he means take your losses you have from listening to him before they get bigger because he was dead wrong. Glad I didn't listen to him and have been in cash. Hmmm, if is now saying sell, I think the bottom might be near.

2008 Sep 27 12:08 PM

[WallyJr:]

Cramer is a Wall Street shill. Five years from now when inflation is double digits, Cramer will be saying this bailout was a big cause and that's why he opposed it. These guys are liars -- and with their fortunes and careers riding the glorification the Wall Street crooks, why wouldn't they be?

Senator Shelby and Neil Cavuto seem to be among the view who are unafraid to voice opposition.

2008 Sep 27 01:09 PM

[jp23:]

Do the opposite of cramer....the guy is total joke and should be taken of the air.

2008 Sep 27 02:11 PM

[icandoitdon:]

if wall street wants to crash monday morning because a bailout package isn't delivered, let it crash.

this financial system is toast...the question is whether we acknowledge it sooner or later. our economy has been sustained for years by too much leverage and too much cheap credit, enabled by an incompetent and political federal reserve, self-serving and spineless congressmen and a foolish administration that preached that "government is the problem, not the solution" right up until the walls to crumble. now they think government is the solution. funny how fast they become socialists when they stand to lose money (and elections).

the deleveraging that must occur will take years and this bailout package will not prevent it from happening...nor should it. recovery will be faster and more sure footed if the trash is swept out the door, including the regulatory trash....greenspan, bernake, paulson, bush, congress, et al....who invested in the "don't ask don't tell" school of economics that was ushered in starting with the reagan era. democrats are just as responsible for it as republicans.

a crash will be a humbling experience for this nation. it needs one.

2008 Sep 27 02:15 PM

[DM32:]

Cramer is the image Wall Street greed -- take profits when things are good and run to the government to bail him and his buddies out when things go south. He is a trader and not an investor although he can be good for a few laughs -- just not for sound financial advice.

2008 Sep 27 04:01 PM

[DM32:]

Our political leaders- both Rebublicans and Democrats, with very few exceptions should be swept out with the biggest broom the voters can find. They collect $3 trillion in taxes and have managed to create $50 trillion (at least) in debt and unfunded liabilities and some want to raise more taxes. They must first provide total visibility on where the $3 trillion in going and how much is being wasted. What we are going through right now is only the tip of the iceberg. Remember, we are the co signers that provide the "full faith and credit" of the U. S. Government. When they finally realize they cannot get it from raising taxes, they will begin to seize assets. Take AIG. They did that deal it in the name of protecting taxpayers, but have totally wiped out the equity of the shareholders. I wonder how many of those people were taxpayers and now their near worthless assets are in the hands of the government.

2008 Sep 27 04:19 PM

[Fighting Yoda:]

All the bailouts have propped up these markets. This new bailout if it happens will postpone the crash by a week or two. But the big crash is coming, it aptly will come after the biggest bailout.

Greenspan/Bernanke/Pau... - thank you all very much - RIP.

Commodity price action is clearly indicating major global slowdown. For all the optimists- even S&P fell 50% after the dot scam bust. Even Greenspan couldn't prevent it.

The biggest credit bubble has burst - stock aversion will happen. Sell every rally. All confidence in the system is gone.

2008 Sep 27 05:16 PM

[TraderGreg:]

The problem is much, much bigger than the $700B bailout. This is throwing good money after bad money - and totally useless. Recessions are good - they kill moronic businesses, and make room for the new generation of smarter people. The innovation process will continue, but only after the Wall Street morons are R.I.P.

2008 Sep 27 08:44 PM

[TraderGreg:]

Take Cramer off the air. He's embarrassment to the investing community.

2008 Sep 27 08:46 PM

[raising4dau...:]

Of course Cramer and the CNBC talking heads and info-babes are talking up the bailout. If the market crashes and the GP starts hating stocks (which happens for decades at a time), CNBC will go off the air and those folks will be slinging chalupas at Taco Bell.

2008 Sep 27 10:07 PM

[PeteK:]

BOYCOTT CNBC & Cramer. That will make them think twice before openning their mouths. Remember how CNN used to be pro-Clinton ? Now its a different story.

2008 Sep 28 01:00 AM

[Joe Smith:]

Well that's put my mind at rest. If the half witted Cramer thinks that the world will end then we will probably be all right. In fact I'm feeling slightly optimistic now.
LEH was a screaming buy for Cramer a few weeks ago -it "rallied" all the way from $16 to 20 cents. This guy is the best reverse indicator at the moment...

2008 Sep 28 08:54 AM

[WEBISKING:]

Time will prove thatThis deal will be profitable the SMARTEST FINANCE GUY Buffett said it will MAKE the TAXPAYERS MONEY, Those who bought Ko at 49.99 MO at 19.72 and Pm at 49.50 this week will EASILY make double digit annual returns DESPITE all this doom and gloom .Be greedy when others are fearful and BUY QUALITY at discount prices

2008 Sep 28 09:14 AM

[earlpearl:]

the banks are broke and broken,,cramer knows market is going much lower before a bounce or rebound and NOT because of the banks but because all the fear and loss of confidence the bank failures are going to cause...soon real soon the average investor is going to SELL EVERYTHING and it will be at the bottom...then and only then will be be able to make logical decisions about investing

2008 Sep 28 10:24 AM

[OldLimey:]

TraderGreg (first comment) is dead right. This is a point in time for Schumpeter, not Keynes.

2008 Sep 28 10:54 AM

[sfm10:]

Who cares what Cramer said anymore? I stopped watching/listening to him over a month ago due to his performance ravaging SIRI. He is a whoring shill for GS and any of the rest that he is in cahoots with... despicable.

2008 Sep 28 11:56 AM

[MSmailbox:]

I have to disagree with Cramer, on the "dire straits." I believe that the fed will loosen, soon... 1/2 point! The deal is in and we are OK, now.

That said, on Friday, I began BUYING, not "SELLING into strength..." Boeing, Morgan Stanley, Freeport-Mac, BHP-Bill and Petrobras, to name a few... I confess that I sold MI, but my performance expectations had been met and I needed capital to invest in the beaten-down basics, which I picked out of the bone yard. Every one of these stocks, I owned at much higher prices, earlier in the year... Nothing has really changed, except that there have been a few bank runs, as people draw their deposits down, in order to buy equities... Maybe, Cramer is using reverse-psychology, or something. Cash may be King, but equities are emperor! I'm not quite ready to do fertilizer or solar, again yet. I look for Monday to be a triple-digit UP day, not only because of this post, but because of The Deal with Congress, as well.

2008 Sep 28 12:57 PM

[carey_jim:]

As the emotion on this board proves, human beings are motivated by emotions and not reason.

We are motivated by fear and greed, love and hate, the will to dominate others and the fear of being dominated by them.

The American economy is near "collapse" but collapse from/of what?

Most Americans don't need SUV's, designer clothes, expensive watches and jewelery just as they don't need nine homes and several private jets to fly around the world in.

Almost no Americans follow the wisdom of the ages and live as Christ, the Buddha, Moses and Mohamed did but most PRETEND to.

So why are we surprised when we are left with the golden calf?

And why are we surprised to see the Russian bear prowling off the coast of Florida and fishing in the waters of Venezuela, the Chinese communists sharpening their knives and getting ready to make a deal with Taiwan that America can't refuse and Shiite Iran biding its time until Iraq and the Middle East falls into its hands like a ripe fig?

The solutions to our problems are obvious and easy and have been around for thousands of years. They are called democracy, freedom, justice, equality, compassion for the less fortunate, friendship, love and all the other suspects that we've shoved into the closet during our most recent dance around the golden calf.

"I have met the enemy and the enemy is us." Pogo.

2008 Sep 28 01:09 PM

[strader:]

I cannot forget Cramer raving over a year ago to Erin how bad the subprime crisis was. Everyone thought he was nuts-including my inv advisors. Wish I would have listened to him instead of them

2008 Sep 28 04:59 PM

[nyka:]

The last time I read Cramer's blurb, he was recommending Wachovia, reassuring would-be investors that CEO Steele was, indeed, a man of steel and could resurrect Wachovia to a level that would mirror its illustrius past. Oh, well...

2008 Sep 28 07:53 PM

[css1971:]

The Republicans and Democrats are both paid puppets. Their employers aren't going to allow real change.

2008 Sep 29 04:37 AM

[Ankit123:]

I think as per articles all over the magazines, sites etc. it seems that all are bothering about the so called "WALL STREET" , but i must say that stop thinking only from wall street prospective rather than it is a crucial time to think about the Economy as whole. Because directly or indirectly all other country like Europe, Asia etc are dependent on U.S . So My guess is that every one should come forward and let the U.S economy save from this turmoil, otherwise there is going to be big turmoil all over the world and the economy of all over the will start see huge downfall.......

DON'T U THINK GUYS?????????????

2008 Sep 29 07:52 AM

[Smarty_Pants:]

Cramer said:

1) "We are truly in dire straits here people,"
(Finally he's said something that's actually so, though his remedy is less desirable.)

2) "failure of Congress to pass the bailout plan is causing the banking system to fall deeper into trouble"
(and this is a bad thing? Seems like the 'banking system' is what caused the problem in the first place. IMHO the best solution would be to scrap the current banking system and start over again from scratch.)

3) He "can’t emphasize enough how important Paulson’s plan is to boost the credit markets – the economy’s fuel – force money back into stocks, bonds and the like, and get economy moving again."
(Here Cramer displays his complete ignorance of all things economic. Building an economy which requires borrowing to function is the heart of the problem and the main reason why our 'banking system' got us to this point initially.)

The best thing to do would be to let them all fail and then pick up the pieces and start again. It would be very painful, but better than the bailout over the long run. Brace yourself for a very long and miserable 'slowdown'.

Spend less, save more, and make an effort to help your neighbor when you can. Our country will get through this at the local level, despite what the moneyed elite do in Washinton.

2008 Sep 29 09:54 AM

[the big apple:]

Unfortunately, Jim Cramer's "Mad Money" and Fast Money are part of the problem. Look at the names of the shows "Mad Money" and "Fast Money". They are telling you how to quickly screw the person who's not watching the show. It's a vicious circle. They say "sell" and everyone sells blindly. And if you really pay attention, there are no real timeframes for anything on these shows, so what was bad advice can easily be swept under the carpet by explaining some other aspect of the market.

Look who's on top - Warren Buffett AKA "Slow Money" - as soon as we as a culture ween ourselves off of the idea that making a quick buck by doing absolutely nothing is admirable, we will be in far better shape. I am a young investor, but I will not subscribe to these trendy misinformed shows or this greed. If any of these analysts really want to make a difference, get off your shows, work for the Treasury and put your money where your mouth is.

2008 Sep 29 12:35 PM

[the big apple:]

Unfortunately, Jim Cramer's "Mad Money" and Fast Money are part of the problem. Look at the names of the shows "Mad Money" and "Fast Money". They are telling you how to quickly screw the person who's not watching the show. It's a vicious circle. They say "sell" and everyone sells blindly. And if you really pay attention, there are no real timeframes for anything on these shows, so what was bad advice can easily be swept under the carpet by explaining some other aspect of the market.

Look who's on top - Warren Buffett AKA "Slow Money" - as soon as we as a culture ween ourselves off of the idea that making a quick buck by doing absolutely nothing is admirable, we will be in far better shape. I am a young investor, but I will not subscribe to these trendy misinformed shows or this greed. If any of these analysts really want to make a difference, get off your shows, work for the Treasury and put your money where your mouth is.

2008 Sep 29 12:35 PM

[User 265729:]

Cramer is an idiot. Who would listen to somebody like that is beyond me. I think he must rely on people who went to public schools in the last decade for an audience.

Well everyone... The House of Representatives did the right thing for a change and voted against the Wall Street bail-out bill. Thank God.

So everyone, I guess this means that we are on the other side of the "abyss" and that we will soon be in a "dire situation" as we have been told. I guess this means:

1. Paulson's buddies at Goldman's won't be getting their $10-20 million bonuses this year.

2. Corporate jets have been grounded.

3. Nancy Pelosi had to cancel the appointment she had to get her nails done.

4. Barney Frank is looking at the "help wanted" section since he might need a real job soon.

5. George Bush is in a meeting telling everyone that, "Gee... The American people aren't as stupid as I thought!"

6. We will withdraw from Iraq since we can't afford it.

7. Credit will "freeze-up" and people can only spend what they make or save.

8. Wall Street will take responsibility for their poor judgment.

9. FDIC will be pulling a lot of overtime.

10. CEO's and Wall Street sharks and "analysts" will do some manual labor.

On the other side of the abyss... The world still turns. The sun will rise. We can build a better future...

2008 Sep 29 02:18 PM

[User 265729:]

Forgot the most important thing...

Cramer will lose his job at CNBC and will be found washing dishes at a Chinese restraunt (in China!).

2008 Sep 29 02:32 PM

[User 265729:]

Oooops... Should be spelled "restaurant." I don't want to be associated with those who follow Cramer's advice.

2008 Sep 29 02:33 PM

[daytrader:]

i,as most if not all people,have lost all respect for cramer.he is a whore for the big brokerage houses of wall street.he says he donates all his money to charity.ok,but how much money has he cost people.

perfecr example,a couple of years ago,he said nyx would hit $240.that was his pick of the year.then a little later he changed his price target to $200.

the bs goes on&on!

how about the july 15th bottom?now he hust said the dow will drop another 2500 points.wahat a phony bastard!

CRAMER,YOU SUCK!BIG TIME!!!

2008 Sep 29 03:49 PM

[Maxters:]

Sounds like daytrader trades on Cramers recs, instead of being entertained and educated by him.. I would never buy stocks as Cramer recs.. That would be obsurd.

2008 Sep 29 04:11 PM

[Michael Zhuang:]

Did Jimbo called the July low the market bottom barely a month ago? See what happened. Now that he is calling Dow to go down to 8000, I feel a lot better about the market. He is the best free contrarian indicator out there.

2008 Sep 29 04:44 PM

[daytrader:]

to maxters

i stoped listening to cramer over a year ago.you are right.i have alot of animosity towards him because not only did he cost me money;but everyone else.as people have been saying,get him the hell off tv!

cramer is on thier side,not ours.

2008 Sep 29 05:23 PM

[User 265729:]

Cramer...

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2008 Sep 29 07:49 PM

[Out There:]

I think Cramer has a lot of insight into what's happening in the markets, certainly more than I can see, and is well ahead of most anyone on what's going on and what's likely to happen, including those in government who really should know what's going on but apparently don't. I think the Congress not acting on this credit mess, just reflects their lack of foresight and shows just how far behind they are in their understanding of what's going on.

2008 Sep 30 09:36 PM