The Long and Short of It - Cramer's Mad Money (9/18/08)

by: Joan Wickham

Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Thursday, September 18.

What the Market Needs

Investors should  take a hard look at their portfolios and make some sales tomorrow after today's huge rally, Jim Cramer told viewers. Cramer advised selling into any future rallies to free up cash for the declines that are most certainly ahead. "Get into position for the next big sale," he told viewers. He said today's 410-point rally in the Dow was entirely due to rumors that the federal government is considering a resolution mortgage trust to begin buying up bad home loans in an effort to rescue the U.S. banking system. Cramer said a resolution trust will not only put a floor in the housing market but is far more effective and inexpensive than the current plan of nationalizing entire companies. He said the Federal Reserve needs to cut interest rates to 1% to spur growth and add liquidity into the markets. He again urged the re-instatement of the uptick rule, which is designed to prevent relentless short-selling of companies. And finally, Cramer said regulation is needed to stop the credit default swap activity that companies have been engaging in. All of these things, said Cramer, are what the markets need to finally put the housing and financial crisis behind us.

The State of Housing - Pulte Homes (NYSE:PHM)

Richard Dugas, president and CEO of Pulte Homes, talked about the state of the housing market. Dugas said he still feels there's a ways to go before the housing market hits bottom. He said that while the situation is improving, there is still a lot of excess home inventory that needs to be worked off. On the upside, Dugas confirmed that deposit cancellation rates, which peaked in 2007, have moderated so far in 2008. For would-be homeowners, Dugas said now is a great time to buy a home, citing low mortgage rates and depressed home values that make owning a home more attractive than renting. When questioned about Pulte's financials, Dugas said his company currently has one of the best balance sheets in the industry, with over $1 billion in cash. With the housing market still underselling the growth rate and pent-up demand for homes building, Cramer and Dugas agreed that now may be a great time to buy a home and shares of Pulte Homes.

New Financials - Goldman Sachs (NYSE:GS), General Mills (NYSE:GIS), Heinz (HNZ), Wells Fargo (NYSE:WFC), US Bancorp (NYSE:USB), Bank of America (NYSE:BAC), Wachovia (NASDAQ:WB), JPMorgan Chase (NYSE:JPM), Fannie Mae (FNM), Freddie Mac (FRE), Tootsie Roll (NYSE:TR)

"The market is speaking and I hear it," said Cramer in his "Sell Block" segment. He said that the markets are clearly saying that investment banks, like Goldman Sachs just cannot be owned, while other companies, like General Mills and Heinz are the place to be. According to Cramer, the time has come to put the investment banks, like Goldman, on the back burner, and instead focus on the deposit banks, such as Wells Fargo, US Bancorp, Bank of America, Wachovia and JPMorgan Chase. Ever since the takeover of Fannie Mae and Freddie Mac, the confidence in the financials has been shattered, with the markets now clearly favoring the more stable food names and deposit banks, said Cramer. Cramer said even names like Tootsie Roll, which is now on the SEC's watch list of heavily shorted names, will likely see a pop as the shorts vacate in droves.

Mad Mail - Cal-maine Foods (NASDAQ:CALM), Panera Bread (NASDAQ:PNRA), Clean Energy (NASDAQ:CLNE)

Cramer expects Cal-maine Foods to rise now that it's on the SEC's list of heavily shorted names. Cramer likes Panera Bread more, but thinks that any profitable company on the SEC's list should do better going forward. He told another viewer that he's still a believer in Clean Energy as a speculative stock.

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