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Cramer's 'Mad Money' Recap: Doomsday Scenario

TheStreet.com Staff

Click here for an archive of Cramer's "Mad Money" recaps.

Jim Cramer "out-beared all the bears" and gave the worst-case scenario of what could happen to the market on his "Mad Money" TV show Monday.

"This is not my possibility," he told viewers, but this is what all the bears are saying could happen.

"There are three groups of stocks that are in trouble, to say the least," and they're all centered on borrowing and lending money, Cramer said. The first "crisis point" is the home builders.

"These are a total mess," he said. "The only one that doesn't seem like a complete disaster is MDC Holdings MDC."

DR Horton DHI, Pulte Homes PHM and Toll Brothers TOL can't be touched. But the worst part is that they're still building houses, Cramer said.

Crisis point No. 2 is the financials, he said. Loans are resetting at much higher rates, and Cramer predicts in his worst-case scenario that 50% of home buyers who took out loans will simply walk away from those loans. Plus, yields could get cut or vanish completely at these big lenders, he said.

Cramer said that he's not telling investors to leave the market, "but you can't own anything that even walks by a mortgage."

The third and final crisis point is the brokers. The worst case here, Cramer said, is that the brokers could lose their mortgage business and that "all of these could suffer huge." Companies that need financing are vulnerable as well, he said.

Every deal that needs financing to complete could fall through, and companies could experience big losses.

All of this is the worst-case scenario. However, "this isn't going to happen," Cramer assured viewers. "The worst-case scenario will be derailed." And even if it does happen, people can still make money in the market, he told viewers.

Avoidance Factor

Two things can happen so that the worst-case scenario is avoided, Cramer said. First, "we can get help from abroad," he said. "If things get cheap enough, we'll start to see buyers from overseas" take stocks higher.

Alternatively, if the Federal Reserve listened to the first part of Cramer's show and agreed with it, "all the doom and gloom will just go away," Cramer said.

If the Fed cuts by one percentage point, all of the problems he previously mentioned would vanish: The housing glut would go away, and homeowners would be able to refinance their loans.

Countrywide Financial CFC, DR Horton, Pulte Homes, Centex CTX and Lennar LEN would all profit from a rate cut, he said. Bear Stearns BSC, Goldman Sachs GS and Citigroup C, the latter two of which Cramer owns for his charitable trust, Action Alerts PLUS, would move up as well, Cramer said.

If there was a full-point rate cut, then the Dow would go straight to 15,

If You Don't Bank on Ben

In the case that Fed Chairman Ben Bernanke doesn't save the day with some rate cut, Cramer gave viewers a list of stocks that should work even during Doomsday. People who think there is nothing that can go up in this environment are being "stupid and antihistorical," he said.

Right now reminds him of 1990, when the banks had a real collapse. From June 30, 1990, to Oct. 30, 1990, a basket of bank stocks went down about 50%, Cramer said. "But the disaster was contained."

During this time, Cramer said he went looking for stocks that could do well even when anything financial could not. In this period, high-growth stocks "roared," the oils were up huge, and the food and beverage stocks were up nicely or flat.

Although 1990 was the worst time for banks that Cramer can remember, people still made money, he said.

"The crisis of 1990 was probably 10 times worse than this one," Cramer said. Almost every bank in New York was bankrupt. Therefore, the bears who believe that nothing can be bought here are wrong, he said.

"Celgene CELG, Kellogg K, Schlumberger SLB, Medco Health Solutions MHS and Kimberly-Clark KMB -- that's your diversified portfolio for Doomsday," Cramer said. "These will only fail if Bernanke does his job and cuts rates."

In the meantime, Cramer reiterated that he does not believe the worst-case scenario will happen, and he is sticking by his six wild bull markets: oil and oil services, agriculture, machinery, aerospace, infrastructure and minerals.

Moreover, he's still bullish on his four "horsemen of tech:" Amazon.com AMZN, Google GOOG, Apple AAPL and Research In Motion RIMM. "Tech, in general, is very right here," Cramer said.

Mad Mail

During his "Mad Mail" segment, Cramer told a viewer that he believes ValueClick's VCLK quarter was "really awful."

"I don't have my arms around it yet," but it seems as if ValueClick will go down to $18 before it bottoms, he said. ValueClick closed at $21.01 on Monday.

Cramer told another mailer not to sell and to use weakness to buy Brookfield Asset Management BAM. He told another mailer that Rite Aid RAD is doing really well, and he advised not to sell it.

Lightning Round

Cramer was bullish on Caterpillar CAT, Level 3 Communications LVLT, Allscripts Healthcare Solutions MDRX, Cheesecake Factory CAKE, Johnson Controls JCI, Amylin Pharmaceuticals AMLN, Amgen AMGN, Ladish LDSH, Sun Microsystems SUNW, Ryerson RYI, Reliance Steel RS, Google GOOG, XTO Energy XTO and Continental Resources CLR.

Cramer was bearish on Whirlpool WHR.

For more of Cramer's insights during the Lightning Round, click here.

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