Time to Hoard Cash - Cramer's Mad Money (10/6/08) 12 comments
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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, October 6.
Cramer's Plan for the Government
With the market dropping as many as 800 points in intraday trading, investors have to protect themselves. He said while it's not time to sell everything, he advised viewers that if they need cash in the next five years, a Federal Deposit Insurance Corp. (FDIC) insured savings account is the only way to guarantee your money will be safe. Cramer went on to say that investors would be foolish to keep all of their money in stocks in such a volatile market. With some many questions still looming about the recently passed bailout package, Cramer outlined his plan for what he government should do next.
- First, the FDIC needs to stop seizing banks and announce once and for all that they're done with seizures. With the bailout package now in place and the FDIC insurance limits raised to $250,000 per account, he said the market has the tools it needs to work out the rest of its problems without government intervention. Furthermore, he said, a bold statement from the FDIC that the seizures are over will go far to stabilize the market.
- Second, he said, the government needs to start putting the newly allocated $700 billion under the Troubled Asset Relief Program to work. He suggested first buying individual home loans, a move which will allow the government to immediately end the foreclosures and begin the renegotiation process to lower the terms of the troubled mortgage loans while taking the toxic assets off the balance sheets of the banks.
- Lastly, Cramer said the government should buy the credit default obligations (CDO's), but only after it has exhausted the individual loan options. For these CDO's, Cramer suggested they be grouped by geography and vintage, so the government can hold them until their values increase, then sell them in an orderly manner.
Cramer said if the government follows this plan, only then can it avoid a repeat of the Great Depression. Until then, however, Cramer said it doesn't hurt to have a little cash socked away in savings. Not all investors are the same, though, so if you don’t need money in the near term, for the next five years, then Cramer advises you to stay with the market. He doesn’t want every investor jumping ship. He’s still bullish on stocks for the long term. He just wanted investors who needed to raise chance to have the opportunity. For those people, in this environment, cash needs to be their biggest holding.
Cash Is King
Cramer returned to the old adage "it's better to be safe than sorry" when reiterating to viewers that they should sell at least 20% of their portfolios and move that money into safe, FDIC insured savings accounts. Cramer again reminded viewers that they can't buy even defensive stocks without first taking profits and selling stocks to build a strong cash position. He again advised investors to have enough cash on hand for things like buying a home, paying for college, buying a car or helping parents retire. Cramer said investors should have cash on hand and not rely on the markets to be there for them. Until the chance of another Great Depression is off the table, Cramer said the only prudent thing to do is horde some cash. He said he doesn't take the term "depression" lightly, but he feels the market could retest the lows of October 2003, when the Dow traded at just 7,700. Are we better off today than in 2003? Cramer said, "No." With the huge financial crisis, the risk of a worldwide slowdown, and continued energy problems still looming, the possibility of further declines in the markets are very real. The only stocks Cramer said he will even go near are the food, drug, and packaged goods makers, along with high dividend paying stocks where the dividends are protected by strong earnings, and companies with large cash positions relative to their current valuations. Other than these stocks, he said, cash is the place to be.
A Flight to Safety -Chattem (CHTT)
Zan Guerry, chairman and CEO of personal products maker Chattem, spoke to Cramer who wanted to see if the company is a safe, recession-proof place to invest. This is exactly the kind of stock Cramer wants investors to consider in a market as tough as this. Guerry said that most of Chattem's products, including Gold Bond, Icy Hot and Act mouthwash, are things people have to use regardless of the economy. And the company’s record Wal-Mart sales for the entire month of September prove it. He said the company is in a strong position, with a solid balance sheet and $5 a share of free cash flow. When asked where the best place was to invest that free cash, Guerry said that Chattem is being conservative and is investing in advertising and building its brands. However, Guerry also noted that if an acquisition opportunity arises, the company will certainly seize that opportunity. Cramer said Chattem has both strong brands and declining raw costs going in its favor. Chattem, he noted, also recently pushed through a 5.4% price increase to further bolster its bottom line. With 65% of the company's sales coming from its six top brands and all six of those brands being No. 1 in their categories, Cramer called Chattem one of the ultimate safety stocks.
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This article has 12 comments:
The dollar may still be a dollar with FDIC insurance, but the dollar might not be worth much.
Good luck and keep your wits about you.
And along with CNBC, he's apparently completely forgotten his July 15 botttom call.
" With the bailout package now in place and the FDIC insurance limits raised to $250,000 per account, he said the market has the tools it needs to work out the rest of its problems without government intervention."
Which government intervention might that be? What here isn't government intervention? ITS ALL GOVERNMENT INTERVENTION!
"Furthermore, he said, a bold statement from the FDIC that the seizures are over will go far to stabilize the market."
No, that would be seen as empty talk. It would be the last seizure until the next one comes along. Nobody but Cramer would buy that.
"He suggested first buying individual home loans, a move which will allow the government to immediately end the foreclosures and begin the renegotiation process to lower the terms of the troubled mortgage loans while taking the toxic assets off the balance sheets of the banks."
What are you kidding me? First, do you know how many individual loans there are? What would be the criteria in deciding who's loan to rescue? Those that are 3 or 4 payments behind? Well, count me in. I haven't missed a payment yet, but I would love to get mine renegotiated too. Talking about moral hazard. We don't need to make matters worse.
"Lastly, Cramer said the government should buy the credit default obligations (CDO's), but only after it has exhausted the individual loan options. For these CDO's, Cramer suggested they be grouped by geography and vintage, so the government can hold them until their values increase, then sell them in an orderly manner."
Impossible! The market on these things is far too huge. I like better the clearing house the Fed is setting up. Anything that adds transparency to the situation will reduce the fear associated with these assets. Additionally, it will provide an actual marketplace to trade them as the market re-liquifies.
"Cramer said the only prudent thing to do is horde some cash. He said he doesn't take the term "depression" lightly, but he feels the market could retest the lows of October 2003, when the Dow traded at just 7,700"
This is just the kind of talk I like to hear. Capitulation only comes with virtually every talking head and wall street pundits telling us the sky is falling. A bottom must be at hand.