Cramer: Dow Could Drop Another 14%, Oil's Going to $50

 |  Includes: DIA, GIS, K, MDLZ, OIL, PG, USO
by: SA Editors

From Jim Cramer in New York magazine (emphasis added):

What will New York look like a year from now? The answer: bad and probably worse, and perhaps downright catastrophic. Three degrees of awful. The first step was passing the bank-bailout legislation. Now that it’s done—and if it didn’t get done we would have been looking at a guaranteed economic collapse—the critical issue will be presidential leadership. And while any president will be an improvement over the current one, there is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression...

At this time next year, I could see the Dow as low as 8,300. That’s more than 40 percent off its October 2007 high of 14,164. On Main Street, that means a further slowdown in consumer spending, as buyers feel poorer, and another hit for 401(k) and college savings accounts. For Wall Street, it means more bank closures and mergers and still more layoffs. The two remaining independent commercial banks–née–investment banks, Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS), will have to fight mightily to remain independent. The bet here is that Goldman makes it but Morgan Stanley succumbs to one of the four emerging megabanks — Citigroup (NYSE:C), JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC)...

In terms of investing between now and next fall, I’d buy the stocks of only companies you can’t not use—Kellogg’s (NYSE:K), General Mills (NYSE:GIS), Kraft (KFT), P&G (NYSE:PG). You can’t trust anything to do with financial paper — there’s still too much uncertainty (if a bailout bill does pass, at what price will the toxic bonds be marked?). And commodities have been bid up too high — demand soared as investors sought shelter from stocks — to buy for some time. Oil’s going to $50 on weaker demand; when it gets there, we can revisit the oil stocks.