Jim Cramer fills his blog on
every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- defense stocks and the election,
- owning Lehman, and
- whether the sky is, in fact, falling.
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How to Play Defense Stocks Into the Election
Originally published on Wednesday, June 4, at 7:04 p.m.
We've had some interesting pullbacks of late that are really worth highlighting. The defense stocks in particular -- not just because I just got off the
, a nuclear carrier -- seem ripe for the buying. We have seen a tremendous hammering in this group as if, somehow, the anointing of Obama means the winning of Obama and then somehow the vivisection of the Defense Department's budget.
It's simplistic thinking. I believe that the stocks, as they go down, are excellent buys on cash flow and on a chance that the single most
-defense presidential candidate since Scoop Jackson ran in the 1970s could be elected.
This is one of those compelling risk/reward situations where you could find yourself picking up some
refuses to come in so is now my least favorite) and you can win either way. I think Obama has to tack extremely right to win, and the easiest way to do that is simply to call for a strong defense and ram it home by visiting defense plants and talking about the need for non-Iraqi strong defense elements.
The propensity is to want to sell GD off, that as it is the most linked to Iraq with the exception of Alliant. But why not split the difference? I have been buying Raytheon ,and I think Northrop Grumman is terrific and in some ways
because it is the Democrats' defense company, with all of the homeland security counterterrorism plays.
The Obama hoopla will die down, and I believe be replaced with pro-defense talk. This might be the moment to be buying this group or swapping out of LMT and into the other hard-hit ones. Then hold them into the election and be prepared to win either way!
At the time of publication, Cramer was long Raytheon
Why Own Lehman?
Originally published on Thursday, June 5, at 7:46 a.m.
At an investment symposium I attended last night, someone asked me whether I thought
was going under. I said, no, no I didn't think so. It's got a great franchise with a good cash position, reduced leverage, much better management than
and a buyback that's kicking in that wouldn't if things were as bad as the bears make it out to be.
So, the individual asked, would I buy the stock? I said, "Why the heck would I do that? To catch a 2- or 3-point rally? There is no
I explained that some stocks are neither longs nor shorts -- that, to me, is Lehman. There's no reason to short it, because I don't think it is going under but many are betting that way, and there is no reason to go long it, because the place is set up for a period of big fees from fixed-income products, from structured products, but clients have at last figured out that they will lose their jobs if they keep buying this nonsense.
And that's really the rub. These places have oodles of high-priced salespeople, tons of them, and they are all being paid fortunes to sell products that don't work. They sell broken vacuum cleaners with no warranties.
It is that stark.
I know that anyone in brokerage is always reluctant to admit that structured products really have no value or are too risky, that they're just a way to figure out how to take a little extra per million -- a fraction, but they do add up. But that's what happened to a lot of these great firms that got fixed-income-heavy. There isn't enough money to be made selling regular commodity fixed-income products, so you have to talk people into buying things they shouldn't that they don't understand.
That game is over. But the people are still there, as is the overhead. Without this stuff, I don't know how you make a lot of money at an investment firm, particularly when you have decided to shrink your balance sheet and make fewer loans. Some can get away with it:
Bank of America
, for instance, because it has a deposit base (same reason
is worth something, but I don't want to own it, either), doesn't need to rely on structured products to make some money.
LEH? I just don't see how they can deliver $5-6 earnings power anymore. Worse, I can't even figure out what they
earn in this environment. The franchise isn't too dicey, just the earnings estimates.
I have so many companies that are delivering consistent, good numbers, why do I need a company that has a fraction of the earnings power that it used to have?
No, I don't want to own Lehman.
: Doug Kass, a major topic of last night's investment shindig because of his bullish call on the banks, is growing even more bullish on the group. I simply DO NOT share that cause!
At the time of publication, Cramer had no positions in the stocks mentioned.
The Sky Is Falling!
Originally published on Friday, June 6, at 9:18 a.m.
Oh no! Horrible payrolls. Recession looming. Really horrible. World coming to an end. Just like it did the last four or five times!!
Or, maybe, just maybe, on a day like today when everyone
has to be
universally negative, it is time for some serious gloom-busting just based on what we are worried about vs. what has happened, because it might provide more of a game plan that makes sense for this market. And let's not doubt the negativity given that we now have
short interest at records, despite a too-bullish Bull-Bear ratio -- the number came out yesterday.
First, last year one of the deals that was slated to go belly-up -- a deal that was the "bridge too far" -- was the Alltel deal. It was thought to be stupid and greedy and would lead to a disaster for
. Oops, it was a home run, at least according to today's accounts. A home run, not a strikeout -- too negative.
Second, I have been really worried about the
deal, but I see the plan now. Zell knows a dirty little secret about monopoly papers, one of the reasons the Justice Department actually used to worry about these one-paper towns .You can pretty much fire everybody or make them write shorter and make some money. Who is going to stop taking a shopper? I now have more faith in that deal.
Third, the institutions that are in trouble are depository institutions or institutions with counterparty risks. Any of them that is in trouble will simply be merged, a la
and Bear. We didn't know it at the time, but that deal basically said, "We are every bit as good as the S&L team under the first President Bush." Does anyone believe that
Bank of America
would go under? Or
? They will simple close one day with one name and open one day with another. Bad loans get put in a pile or a guarantee -- so what? That's how the market could
despite the lows being taken out on banking and the housing index teetering on a breakdown.
has too much counterparty risk. Goldman just buys them with the same guarantees. Maybe
, again, big deal.
Time slowed down the process of the dissolution of the
deal. We all figured it out, even the dumb banks that relied on the guarantees. You have to step up reserves--particularly for
and Bank of America. But so what? If they get in trouble, you crunch the equity and shotgun a marriage. Sorry, that's how it happens. That's why we are in bull mode on this bad news.
Anyway, there are enough dumb mutual funds who can claim they are smart that will keep buying this junk. That's what they do. They are value funds,
meaning they buy until there is no value
Bear gives the government the license crunch the equity of
and guarantee their bond holders. Again, the trick is not to own FNM or FRE unless you think that housing will turn around in 2009, which I do because it is limited to a small number of states where I suspect the inventory will be worked off soon.
Or how about retail? Did
think that these rebate checks would, in the end, do anything but be used for food and fuel? With these numbers we got yesterday we can only say that was UNEQUIVOCALLY WRONG!
You simply can't argue that anymore, or if you did, you should be taken to task for being wrong before the event.
These are simply a few of the positives that people had better start getting used to, because they are going to cause us to break out to the upside. Heaven forbid if the following happen:
The ethanol fraud is ended, paring back inflation dramatically.
Removal of subsidies for oil from poorer countries helps stabilize demand and lets supply catch up.
Mortgage applications jump as the time has come to buy a house after a couple of years of holding off. Soon people simply CAN'T hold off anymore and there is mortgage money available to those who put down what routinely used to be put down.
Do you mind if we keep all of this in mind during the end of the world?
Remember, it hasn't ended before. Sure, as they always say, history doesn't have to be prologue -- this could be the first time.
I am not betting that way.
At the time of publication, Cramer was long Goldman Sachs and Morgan Stanley.
Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for
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