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On a day like today, when the market is up nicely, step one to making mad money is to protect the assets you already have, Jim Cramer said on his "Mad Money" TV show Wednesday.
"If you don't preserve your capital, your gains won't mean a thing against your losses."
Every time the market is strong, investors have to reposition out of the banks, homebuilders and brokers and get into what's working, he said. In this market rebound, Cramer suggested people sell and take some profits.
Right now it might make economic sense for people to walk away from their homes if they borrowed money to buy the homes two years back, he said.
If the home has declined in value by 10%, the "smart, right, rational" choice is for home buyers to walk away from the loans provided they didn't put any money down.
The homebuilders can't sell all the new homes, yet they are continuing to build, Cramer said. Many of these companies, including the public ones, will go under, he predicted.
This ripple effect should also hurt the banks, which is why Cramer advises people to sell the
Moreover, mortgage brokers look to be in the house of pain over the housing glut, he said. Also, hedge funds will lose some of the value in their securities if mortgages are not paid back, which will affect the hedge funds' ability to carry out deals, Cramer said.
"Don't get caught in the housing ripple," he warned. "Try to get out of housing companies. In addition, anything related to mortgages or loans should be sold, because the ripple effects extend pretty far and are pretty ugly."
Chipotle Off the Old Block
Despite the fact that certain stocks should be avoided, there are opportunities in this marketplace that people can pursue once they take some profits, Cramer told viewers.
Take, for example,
, which a few days back was up significantly on one of the worst days in the market.
Another stock in which Cramer said he sees opportunity is
, "up a fantastic 8 points."
Market players can see the opportunity in
because of boomers' desire for wrinkle-free skin, as well as in
, which is up, Cramer said.
He also sees opportunity in defense stocks, such as
, and in oil plays.
"You have to focus on the good as well as the bad," Cramer said as he welcomed
Chipotle Mexican Grill
CFO Jack Hartung to the show. Cramer congratulated him on Chipotle's good quarter and asked about the effects of rising food costs on the company.
"Food costs are a lot higher," Hartung said. "It was worse by 100 basis points this quarter." But because Chipotle prides itself on using the best ingredients, including meat that's naturally raised, it's always had high food costs, the CFO said. Chipotle was, however, more efficient in labor and utilities.
Hartung said that Chipotle is growing not because Wall Street wants it to but because of two other factors. "We look at the quality of real estate we can secure and the quality of managers we're developing," he said.
When asked how the company motivates managers and helps them become more aware of the community, Hartung spoke of Chipotle's restaurateur program, in which the fast-food chain gives its managers a bonus based on how they build their sales.
Plus, Chipotle gives managers $10,000 for every crew person they develop to be a manager, Hartung said.
"This stock should go up again tomorrow," Cramer said, adding that only when he catches three analyst upgrades in CMG will he consider selling the stock. Right now, Chipotle has one upgrade.
To view Cramer's interview with Jack Hartung , please click here.
Am I Diversified?
During the "Am I Diversified?" game, Cramer's first caller named these five plays:
Diamond Offshore Drilling
MEMC Electronic Materials
Cramer called out a tech pair in Corning and MEMC. He suggested that the caller sell MEMC and pick up a defense stock.
The next player called out these five stocks:
Cramer blessed the portfolio as "totally diversified" and congratulated the caller on "nice work."
The next caller asked if he was diversified with the following five stocks:
Cramer called Pfizer his "least favorite" drug stock and called out a tech pair in eBay and Microsoft.
The last caller said his portfolio was made up of these five picks:
, the latter three of which Cramer owns for his charitable trust,
Action Alerts PLUS.
Cramer said the player had a pair with EMC and SUN. "Sell Sun Micro and pick up Raytheon," he said.
In his "Mad Mail" segment, Cramer told a mailer that
has slid from $11 to $8 since he recommended it on his show, calling it too speculative now. However, at $6 to $7, HOKU should start moving back up, Cramer said.
Responding to another mailer, Cramer said he likes
but would rather be in
During the "Sudden Death" round, Cramer was bullish on
Boardwalk Pipeline Partners
. He was bearish on
Cramer was bullish on
Companhia Vale do Rio Doce
Cramer was bearish on
Great Lakes Dredge & Dock
For more of Cramer's insights during the Lightning Round, click here
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At the time of publication, Cramer was long NYSE Euronext, EMC, Sears Holdings and Corning.
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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