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'RealMoney' Radio Recap: Market Madness

TheStreet.com Staff

"If you're in college taking a course in economics, or if you hold a steady job and are just barely getting into the world of investing, or if you're just plain curious about the world around you, today is a great day to learn a lot about the stock market," Jim Cramer told his "RealMoney" radio show listeners Friday.

That's because after six lean years, Wall Street is excited again as stocks representing "every nook and cranny of the economy" post a broad-based rally.

It's not just tech or medical, Cramer said, and many of these companies are reaching all-time highs -- or highs not seen in six years. "This rally has breadth," he added.

It seems counterintuitive, he said, given the fact that there's bad news everywhere. "The Iraq war ... and problems in the Middle East dominate the news," he said. "The deficit is out of control ... the government has no fiscal discipline. Foreclosures are up, home equity loans are down. Inflation is higher ... and the U.S. government just raised the debt level to pay the bills."

But he believes that three reasons justify the exuberance:

First, there have been more mergers and acquisitions "than I have seen perhaps ever," Cramer said, pointing to McClatchy(MNI) buying Knight Ridder(KRI), AT&T(T) buying BellSouth and Capital One(COF) buying North Fork Bank(NFB) as examples.

Close to $150 billion was booked in deals in just the last 10 days, he said. This shows that even though the stock market junkies, the people who determine prices daily, don't have a lot of enthusiasm for stocks, the companies themselves see real value in the market.

"Take your cues from the players, not from the talking head portfolio managers on TV and in the papers," he said.

Plus, real estate is done, he said, citing a report from the Federal Reserve that said the sector is slowing. Money from real estate is going back into stocks.

Finally, he said, corporate America is less corrupt, and that will help fuel a bull market. As an analyst, "I thought there was more corruption in our markets between 1999 and 2002 than any other market in the world," he said.

If you believe the books are cooked and you can't trust the earnings or the executives, it's hard to make a judgment about a market.

But now we're putting major executives in jail, he said. When they just had to pay fines, they didn't care, but once they have to go to prison it becomes too expensive to lie anymore, said Cramer.

A Bonding Experience

If you find yourself short on cash, already in debt and you need more money to pay the bills, it's very unlikely you'll get anyone to loan you money, Cramer said. But that's what our government, "the biggest deadbeat in the world," just did.

The government is constantly running out of money, so it does what it does best, he said, and just got Congress to raise the debt limit to $9 trillion.

When I see that, I see a way to make money, Cramer said.

Now that the government can borrow more money, it will do so by issuing bonds, he said.

Uncle Sam says that "if you give me $1,000, then I'll give it back in 10 years with 6% interest," Cramer said. That's a 10-year bond.

So, it's time to buy shares in the companies that trade those bonds, and he said it's essential to understand that the bond business is an amazing and profitable business.

Brokers buy them from the government, and then, like a retail store, they mark them up and resell them to others.

Big institutions, like company pension plans, need to buy hundreds of millions of dollars to fund their pensions, he said. And when he sold bonds, he said he took a commission on every bond.

"I made 10 times what I made selling stocks in bonds," Cramer said, adding that on a $100 million bond sale he could make $10,000. Plus, he had to split that with his company, which was Goldman Sachs(GS).

He believes that Congress raising the debt ceiling is a bonanza for Goldman, Lehman Brothers(LEH) and Bear Stearns(BSC). "Think of these guys as bookies," he said, because they are the primary bond dealers.

In the investment world, fees are everywhere, Cramer reminded listeners.

"You're probably intimidated ... maybe you think it is unseemly or you think it is beneath you to ask about the fees," he said.

But he said it is essential to ask about the fees up front.

New York Attorney General Eliot Spitzer won't be able to nab everyone charging exorbitant and unfair fees, he said. "Look at how you invest. If your fees are higher than what you've made ... if you feel you're being ripped off, you probably are."

"I represented some of the richest families in the world. In my investment activities ... the richer the person, the more that person asked me about the fees," ha said.

"The more I was asked about the fees, the more I cut the fees. I never wanted to be in the position where I had to defend myself for taking excess fees."

When the richest people are worried about what the brokers take, you should be too, he said, noting that there is a reason why these people have so much money.

The nation's top oil executives have been asked to appear before Congress again to talk about recent mergers that may or may not have led to record profits in the industry. The usual suspects were all there, Cramer said, naming Exxon(XOM), Chevron(CVX) and ConocoPhillips(COP).

"This is a show. It's a Broadway production," said Cramer. "These panels are just theatrics for Congress people to demonstrate that they are with you and sympathetic to higher gasoline prices."

But only 2% of the world's oil is controlled by U.S. companies, and OPEC controls the pricing, he said. U.S. oil companies are only "going along for the ride."

"I say you go along with them."

Cramer said that profits aren't going away for the oil sector, but that now there's a new pecking order. He said his top picks now are Ultra Petroleum(UPL), ConocoPhillips and Occidental Petroleum(OXY), a stock he owns for his ActionAlerts PLUS charitable trust.

Urban Jungle

Cramer said that Urban Outfitters(URBN) has moved lower because the stock's two largest holders, Goldman and Citigroup(C), are letting go of the shares on worries that the retailer's look could be too casual.

When a large institution tries to dump a million shares, it can knock down the stock of a company the size of Urban Outfitters, he said.

The company had been one of the fastest-growing retailers in the country, but the stock slipped in recognition of the fact that sales slowed, he said, adding that in a week or two the company will file its 10-K quarterly earnings report that will likely corroborate evidence that business has slowed.

The stock could take another dip then, he told a caller.

But Urban Outfitters just announced a huge share buyback, which means that the company itself thinks the stock is cheap, Cramer said, and he believes the company can reaccelerate.

Is it the best retail story? No, he said, giving that title to Best Buy(BBY) or Sears(SHLD). "But I like the odds for Urban Outfitters," he said, adding that he would think about buying into this weakness.

Another caller wanted to know Cramer's take on defense contractor Rockwell Collins(COL).

"When I hear the president say that the Iraq war is under control and then [defense stocks] hit 52-week highs ... I say to myself, wow, maybe the war ain't going so well," Cramer said.

Plus, he added that Congress just wrote a blank check on military spending.

"There's nothing in the world like investing alongside the government in defense," he said. That's why he said now is the time to look at General Dynamics(GD), Lockheed Martin(LMT), L-3 Communications(LLL) and Rockwell Collins. "These companies are making money hand over fist."

Nabors(NBR) has just fallen further on news that it has been subpoenaed by the federal government over an alleged oil spill, but Cramer told a caller that the company is "best-of-class in the field."

"I myself would not own options on Nabors," he said. "I think you're putting a gun to your head. You're forcing yourself to be in or out of the stock."

But Cramer said he likes the company and would think about buying it while it's down from its high. He also said that he likes GlobalSantaFe(GSF) and Schlumberger(SLB).

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by clicking here.

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