RealMoney Radio Recap Encore: The Fed's Fast Break

Editor's note: The following is a recap of the RealMoney radio show that originally aired May 24 and which was rebroadcast on Monday, July 3.


"The Federal Reserve is conducting a scorched-earth policy to kill economic activity," Jim Cramer said on his "RealMoney" radio show.

That is causing the market to act in a "schizophrenic" manner, he said.

Today, stocks moved up as a result of new data showing that orders for durable goods had decreased. But when new-home sales data showed an increase in economic activity, the market moved down, said Cramer.

Cramer believes that sort of "counterintuitive" market behavior is going to continue.

"The market will go down each time we see commodity prices go up," he said, adding that high copper prices are causing a headache for Fed policymakers.

Higher commodity prices may feed into higher consumer price levels, thus stoking inflation, Cramer said.

Despite the fact that the world has been awash with copper for pretty much the last 25 years, he said, there simply isn't enough of the metal in the world right now to feed global industrial demand -- most notably from China.

"Since the Fed can't create copper, what it is going to do is reduce economic activity," Cramer said.

Whenever the Federal Reserve thinks the economy is growing too quickly, there is a risk that policymakers will put the brakes on and increase interest rates.

"Imagine a car on the highway that's going too fast," Cramer said. It will get pulled over.

Healthy Cynicism?

"As much as I tell you what I did see, let me tell you what I didn't see," said Cramer.

He drew attention to the proliferation of press stories about executive compensation and how new revelations blindsided him.

It seems that a number of public companies are being investigated by the Justice Department, he said, adding that it is a much more serious matter than being quizzed by the Securities and Exchange Commission.

The SEC can fine market participants, or even ban them from the business, but it is always a civil-litigation matter, he said.

That's a huge contrast to the Justice Department, which can send violators to prison. "If the Justice Department calls, you need a criminal lawyer," he said.

Some company executives are alleged to have backdated the strike price of their stock options to the lowest price level for the quarter. That way, the executives that were granted the options can bake in an instant profit, Cramer said.

He said that when he was granted stock options at TheStreet.com ( TSCM) at $3.30 in the late 1990s, "immediately the stock fell, and I was out of the money."

But "I didn't go back to the company and ask the company to reprice the options at a lower level."

That's exactly what some executives seem to have been doing, Cramer said. "It's killing me, because I didn't think anyone would do such a thing," he said.

"I'm a cynical guy. I believe public companies run themselves much like private companies," he said. The only difference is that public companies disclose what they pay their executives.

"Now I discover that I didn't know what they were paid," Cramer said. "I was dead wrong, and now I'm losing money because I wasn't cynical enough," he said.

Cramer's Callers

The first caller asked Cramer about whether to hold CB Richard Ellis Group ( CBG), the world's largest commercial real estate broker.

Cramer recommended avoiding any stocks connected with the real estate market or the building blocks for the real estate market.

"Even commercial real estate has to be slowed," he said, adding that the Federal Reserve wants to keep a lid on any potentially inflationary economic activity.

The next caller asked about United States Steel ( X).

"The most difficult stock to own now is a steel stock," Cramer said. "When you own a steel stock, you want the economy to go full-steam ahead."

But Cramer also believes that if the economy was to cool down, U.S. Steel's stock price would rise.

"That's because, in the end, we have learned our lesson that the Federal Reserve is in charge," he said. He urged listeners to lighten up on their U.S. Steel positions until the economy cools.

The next caller asked about defense company General Dynamics ( GD). Cramer is a fan despite the fact that the stock has been falling.

"Is the stock falling because of the fundamentals?" he asked. "No, it's because it's a stock," and all stocks are getting killed in this market, Cramer said.

The underlying fundamentals look good, and the company is in line to collect some "gigantic tank orders."

"If General Dynamics goes down, I'd buy more," he said.

The next caller asked about alternative-fuel companies. Cramer said that such stocks were usually speculative, and that as a result they may be disproportionately hurt by a general weakness in the market.

As a defensive move he recommended that listeners lighten up on holdings of alternative-fuel company Pacific Ethanol ( PEIX).

Paychex ( PAYX) and ADP ( ADP) were two companies another caller asked about.

"These are precisely the companies that do well right now in the economic cycle," Cramer said.

"Why?" Because they specialize in running outsourced payrolls for other organizations. As a result, in the days just before paychecks are processed, these companies receive vast quantities of cash. That cash can be lent out to the overnight money market, Cramer said.

When interest rates are low, that doesn't do a whole lot for earnings; but in a high-interest rate environment, like the current one, ADP and Paychex stand to have strong earnings.

Here's your chance to pick the stock you'd like me to feature on my radio show July 6:
Best Buy
Devon Energy
First Marblehead
Rite Aid
Whirlpool
Xethanol

REMEMBER to listen in on Thursday for my take on the stock that wins this poll!

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 Action Alerts PLUS. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict." While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here.

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