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