Cramer's 'Mad Money' Recap: Bank Bounce?

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A return by the banks could be in store for next week, Jim Cramer told viewers of his "Mad Money" TV show Friday, which could set off a marketwide rally.

But Cramer said this depends on two factors: housing and unemployment. Falling home prices and weak employment numbers have killed the banks, Cramer said. But earnings from Toll Brothers(TOL Quote) and Hovnanian Enterprises(HOV Quote) next week, as well as Friday's job report, could change that.

If the two homebuilders show some stabilization, the mortgage-backed securities which have been at the center of the credit crisis could regain pricing strength. Cramer said that would lift a lot of pressure off companies like Citigroup(C Quote), Wells Fargo(C Quote), Merrill Lynch(MER Quote) and Lehman Brothers(LEH Quote).

The possibility for a bottom in housing should result in a bottom for banks.

Cramer said a decent jobs number will just add to the good news, taking the banks, and the rest of the market, even higher. If oil drops to a reasonable level, all the better for investors.

But if the homebuilders post poor numbers and we get a bad jobs report, Cramer said next week will be bad for financials. American International Group(AIG Quote), Washington Mutual(WM Quote), Wachovia(WB Quote) and Bank of America(BAC Quote) could drop to new lows. But Cramer said he feels positive about the outcome overall. Cramer said they don't have to do anything until Friday. If the stars align, you have the green light, Cramer said. Otherwise, stay conservative.

[Editor's Note: The remainder of Friday's program was previously aired.]

Don't Trade an Investment

Cramer wants to offer a new rule for investors: Never turn an investment into a trade.

Cramer said a trade is a short-term buy that is specifically to profit from a bump that comes with a strong quarter or a new product. But an investment, though, is a stock you should hold for much longer, usually about 18 months, Cramer said. Investments forego the quick gains for a bigger return down the road.

Investors will often catch a jump in share price on a catalyst and then exit the stock. Cramer said he did it once when he bought Apple(AAPL Quote) at $26 back in 2004 on the strength of the iPod. He caught five quick points and cashed out. After that, the stock soared toward $200, and he missed the whole trip.

But Cramer doesn't advise that route. You should trust your thesis, and stick with your stock for the long term, especially when you've done your homework. Why settle for $5 when you could have $50?

Multiply by 10

Cramer said stocks that trade under $10 can sometimes be too attractive. We think we can buy more, thus increasing our returns. In addition, there's the idea that a stock that cheap has less downside risk, which minimizes losses. But these ideas are dead wrong, Cramer said.

Stocks don't drop below $10 for no reason, he said. Most likely, it's a result of some sort of trouble. Cramer said he once overlooked Charter Communications'(CHTR Quote) massive debt because the stock was trading at only $4. He bought a position, and the stock soon dropped to $2.

To avoid this happening to you, Cramer recommended the "multiply by 10" test. If Charter were $40 and had the problems it did at $4, would he have wanted it? Probably not. Investors should use this same kind of thinking.

Products Aren't Stocks

While doing his old radio show, Cramer once fell in love with the stock Citrix Systems(CTXS Quote) because of a product called "Go to My PC." Cramer became so enamored he did some homework and bought it.

But he hadn't done enough homework, he said. Go to My PC had been on the market for three years -- Cramer wasn't catching the beginning of the product cycle, he bought the peak. Once that happens, the stock will go downhill unless the company releases something new to boost the stock.

Being late to the game can cost you money, Cramer said.

Death and Avoiding Taxes

Cramer loves a good dividend yield, but some of the best dividends are taxed at the regular rate of 35%. You get around that, he said, by buying these stocks for your 401(k) or IRA.

If you want an incredibly high and often safe yield, go with a real estate investment trust like HCP(HCP Quote) or a royalty trust like Permian Basin(PBT Quote), Cramer said. Royalty trusts can pay out as much as 15%, he said.

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Jim Cramer writes about all the stock trades in his charitable trust for TheStreet.com in Action Alerts Plus. Recent stocks he's traded in this account include Schering-Plough(SPG Quote), Yamana Gold(AUY Quote) and Abbott Laboratories(ABT Quote).

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