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Investors looking to sum up what's gone wrong in the markets need only one word: assumptions, Jim Cramer told viewers of his "Mad Money" TV Show Tuesday.
Cramer said the markets simply assumed that everything couldn't possibly go wrong all at once, but they did.
Cramer provided numerous examples.
Proctor & Gamble
, which he also owns for his
Action Alerts PLUS portfolio and normally a recession resistant bellwether, admitted on a conference call last week that it made incorrectl assumptions on their raw costs and the strength of the dollar, both of which hurt the bottom line and the stock price.
Insurance companies like
all received a downgrade from
, which he also owns for his
Action Alerts PLUS portfolio, because they made wrong assumptions about the strength of their stock price and the health of the commercial real estate market, both of which are forcing them to seek additional financing to pay their obligations.
Cramer said the hedge fund industry assumed the price price of oil would climb forever. Meanwhile, no one anticipated that demand in China would ever fall off a cliff, leaving coal, steel and copper companies upside down in their assumptions.
Bad assumptions are affecting everyone, said Cramer, from
, which failed to forecast higher feed prices, to retailers
, both of which are sitting on mountains of inventory from assumptions of higher Christmas demand.
Cramer: Currency Fluctuations Can Sting Companies
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Cramer talked with Herbjorn Hansson, chairman and CEO of
Nordic American Tanker
to get the latest on his company whose stock has slipped 44% since he last recommended it on May 8.
Despite the slide, Cramer believes a turnaround is coming after the company reported a strong quarter last Friday.
Hansson said Nordic American is in great shape, having paid its dividend for 45 consecutive quarters and no debt. He said his approach is conservative because he has found from his experience that a company can get into trouble if it borrows too much.
Hansson said that his company is in a great position to buy tankers at distressed prices. And he said Nordic American is very profitable and doesn't sees any reason why it won't stay that way.
Cramer said Nordic American is the only tanker company he's going to recommend. "All the other tanker companies are just too risky," he said.
Cramer reminded viewers that Nordic American is not levered to the price of crude, but rather to the supply of available tankers. With that supply of ships shrinking, Nordic American can charge more and send more money to its bottom line.
A Juicy Dividend
is "exactly what we're looking for" in the kind of high-yielding dividend stocks he's been touting.
Cramer said Emerson hasn't seen a dividend yield like its current 4.1% since 2003, and the company's stock actually rose during the last big recession. He said with Emerson's stock now down 40% from its highs, it's the most attractive industrial automation company around.
Cramer reminded investors of the "rule of 72." That formula calls for dividing a company's dividend yield by 72 to determine how long it would take your money to double, given reinvested dividend payments.
In the case of Emerson, the rule of 72 predicts a doubling of an investment in 17 years with a 4% dividend yield, 14 years with a 5% yield and only 13 years with a 5.5% yield.
Cramer said Emerson's dividend couldn't be safer, with a long 52 consecutive year history of paying, and raising, dividends. The company also reported a better- than-expected quarter, beating estimates by 2 cents a share. Cramer called Emerson a buy.
Cramer told a viewer he's been wrong every time he's tried to call a bottom in
, so he's not calling one now.
Cramer told another viewer that he can't recommend
, since it's too levered to new cars, but he is still a fan of
in the auto-part space.
In the Lightning Round, Cramer was bullish on
United Parcel Service
Enterprise Products Partners
Cramer was bearish on
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At the time of publication, Cramer was long Goldman Sachs, Procter & Gamble.
Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC UNIVERSAL or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."
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