Jim Cramer fills his blog on RealMoney 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:
  • hope from the rails,
  • defending the investment banks, and
  • big upside in natural gas.

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Rails Signal a Brighter Future
Posted at 12:44 p.m. EST, March 9, 2010

Rails can lie. These key members of the soaring and all-important Dow Jones Transportation Index can get ahead of themselves when hedge funds move them up, as was the case with CSX ( CSX) when a hedge fund took the stock up by buying on margin to get on the board. The whole way, by the way, the media lapped it up.

But now there are only three of them -- Norfolk Southern ( NSC), CSX and Union Pacific ( UNP) -- and they are pretty unstoppable. If you think of what they carry, the whole thing feels counterintuitive. Coal is one of the biggest goods shipped and it's over-inventoried, so no reason to think that can be the driver. Lumber? Not doing well at all. Cars? Come on, they are still operating far below the old capacity. Fertilizer and grains? Both doing badly. Chemicals? Aha, that works, but they can't be the driver.

I think the rails are trading on the future, and the future is getting better and better despite the worries about the federal stimulus going away, the Chinese bubble and higher taxes -- let's just call it the Pelosi factor.

The rails are saying health care will lose, that the president is losing support -- a big win for him will produce an EPA that could work hard on coal plants to shut them -- and that the second half will be strong.

Again, they could be lying. Now with only three of them, they could be attracting cohort money.

But I follow them and they are reacting to prospects, not current booking, and institutions out there must think that the improvements are going to continue or they would be dumping these shares hand over fist.

At the time of publication, Cramer had no positions in the stocks mentioned


In Defense of Filthy-Rich Investment Banks
Posted at 11:07 a.m. EST, March 10, 2010

Shocker! Stop trading! Investment banks make a lot of money. They offer products that people want that make the banks a lot of money. It is lucrative to work there. You can get rich doing so. It's a place where middlemen create pieces of paper and take a hefty commission on some of them.

And you can work there, too!

Throughout the endless assault on the major investment banks, there is an underlying thread: They get paid too much for what they do, and they offer products no one really wants that are defective from the get-go, so defective that the banks themselves short them.

Now, before I get to the positives, let me just say that I totally agree with the notion that there should be minimal to no bonuses awarded, or to be more accurate, because bonuses aren't really bonuses on Wall Street, no excessive payments awarded to banks that took TARP. I do not care that some of these banks claim they didn't need it. They almost all ran models that left them vulnerable to short raids, and they did need government help, like it or not.

I totally agree with Vikram Pandit of Citigroup ( C) when he said that shorts pushed the bank stocks down to levels that triggered ratings downgrades. I totally agree that bear raids occurred, aided by assets pulled out of prime brokerages and then reports to the media of potential failures.

But shorts don't pick their targets out of the phone book, and the same firms that have advocated all of the no-uptick rules -- the investment bankers -- have to die by the sword they lived by.

Plus, it is totally realistic to believe that people who made tens of millions of dollars in salaries and bonuses in the last seven years of boom can take the hit of not being paid for a year or two. They tend to have big muni bond holdings that aren't hurt, and a regular stream of income, not to mention considerable property. The idea that they were hurting because of no payments for a year is an indictment of their personal investment strategies. Period.

Now, let's deal with the reality of what these places are about. They have multiple sources of income, but the revenue streams that are under fire right now relate to the creation of proprietary securities -- proprietary means they are developed and tend to be unlisted -- that have hurt clients while enriching the creators and salespeople.

Now, first, it is true that clients were hurt. Clients who bought collateralized debt obligations or who used various instruments to hide problems got hurt, but more important, investors in those companies and countries that used these instruments got crushed. And it is true that as for the proprietary instruments, creators made fortunes creating and selling them. That's because when investment banks sell these products, as opposed to selling stocks or typical bonds, they can charge a lot more for these products, with the gross credit hidden. That's because there is no competition for the products and because they are crafted specifically for clients.

Now, once again, let me say as someone who on occasion bought this kind of product, I hated it. You can't value it, the partners can't value it, and my rule was that if you could not find the price in The Wall Street Journal -- the arbiter at the time -- I wasn't going to purchase it. I didn't want to get into a situation that so many hedge funds found themselves in during the 2008 meltdown, where investors withdrew money, forcing these proprietary pieces of paper to be sold back to the issuers, who either had no room for them - Lehman -- or who cut their values so steeply on the return that the hedge funds went under because of these products.

Gary Gensler, the Commodity Futures Trading Commission head who understands every bit of this, wants the credit default swaps portion of this proprietary business to be listed. That would be a godsend for the customers and create a level of transparency that every client should like, but it might cut the profit margins of the sellers, because it might expose the gross credits. (Listing these credit default swaps would also be great for the exchanges that would list them, particularly for the New York Stock Exchange if it moves hard on this, but obviously for the Chicago Mercantile Exchange and Intercontinental Exchange, because they are faster movers.)

OK, that's the bad. Now let's deal with the reality. First, the clients who purchased this stuff either know what they are doing or should know what they are doing. You can't help a stupid client with lots of money who wants these pieces of paper. For the most part, they weren't fooled or tricked into it. The clients wanted either to reach for yield - foolishly -- or wanted to hide bad balance sheets (Greece) in order to fool the ratings agencies, which were willing to be fooled for a price.

Second, there was skepticism about these products among the salespeople, but the demand was there, and so were the gross credits. There was no regulation on them, because the government doesn't really care about them, because the clients are sophisticated, and you can't really be in the business of regulating the rich, sophisticated clients, nor should you be. The people who run these institutions should know that these instruments are dangerous and should have charter restrictions, but you can't mandate them.

So we have a situation where the buyers are willing, the sellers are compliant, the "watchdog" ratings agencies are paid by the issuers -- movie critics paid for by the movie producers, so to speak -- and you end up with what we got.

I am also not dismissing the notion that these pieces of paper were "defective" from the get-go. But the defects tended to be courted by the clients who wanted higher yields or wanted to hide flaws. They looked the other way.

And I do contest the notion that the defects were visible. I am friends with or spoke to many people who created, issued and sold these pieces of paper. Almost universally, they believed in the paper, because it tended to be based on housing, and the assumption of housing was that it would never decline. The models showed that there was either going to be house price appreciation or house price stabilization. The notion that housing could lose 50% of its value wasn't in the models. Nor was the belief that the pieces of paper were fraudulent. Believe me, if housing had appreciated, you wouldn't think anything was fraudulent. You wouldn't know it. There were some skeptics at these firms, but the buyers believed in the model.

I am not excusing what appears to be out-and-out disclosure fraud, the likes of which we saw at AIG ( AIG) where one division, London, wrote multiple policies without reserves to back them. I am also not dismissing the notion that some of the creators of mortgages were simply terrible underwriters, asking for no documentation and often involved in illegal kickback schemes, all of which would have been hidden, though, if housing hadn't collapsed.

Nevertheless, all of these factors dodge the true fundamental question: There are two sides to every market, and even if one is obscured by the creators who actually might have wanted to take the other side, as a client I always saw both. If you liked Greece, you could buy Greece. If you hated Greece, you could sell Greece. If you liked Lehman, you could buy Lehman, and if you hated it, you could short it. I also never knew the good firms to hide their own positions. They would tell you if asked. Did they lie? I never caught them lying. There is no incentive for them to lie, because they will lose you as a client if anyone finds out.

Which goes back to the original issue: These places are money-makers because they make and sell complex products that people want, and they can make a lot of money doing so.

And guess what? You can work there. You can get a job there. You can participate. You can pursue these jobs.

Yes, I am biased. I pursued one of these jobs. I sold these products. I made a lot of money doing so. But my clients wanted the paper. They often asked for the paper. I never tricked anyone into buying the paper. There was a time when the commissions got so great in the 2005-2008 period that salespeople could have sold these instruments hard. Yet, these places have always lived by caveat emptor for big, sophisticated clients, and I agree with that. We can't police these clients. They have to police themselves.

Now full circle: These firms will always make a lot of money. They are plum places to work. We recruited from everywhere, looking for the brightest and hardest-working people we could find. We chose few. We then weeded out many so that just a tiny number of people were ultimately hired. We knew that we were making you rich when we hired you if you made it through the gauntlet.

That's the breaks. You can't say, "This job deserves to make less money and we are going to do something about it." That's socialism, sorry. We are not a socialist country. The idea, though, that that it is just wrong to do what they do -- fundamental to the criticism -- makes no sense at all.

I am simply urging, as the debate rages, to recognize that there is demand, that the buyers weren't tricked, the sellers didn't trick, the ratings agencies didn't help -- big villains here, I believe, because the sophisticated buyers trusted them -- but the process has been and has always been the same: Salespeople make a lot of money crafting product and selling it. As they have every right to.

If we want to mandate that people can only buy listed products, I am game for that. It is the rule I played by. But until we do that, we better accept that we are in a rich-person/rich-investor caveat emptor regime where lots of money can be made selling to them.

And you can make it, too.

At the time of publication, Cramer had no positions in stocks mentioned.


Play for Big Upside in the Nat Gas Space
Posted at 7:22 a.m. EST, March 11, 2010

Upside. That's why I like these natural gas players so much.

I have been saying that Devon's ( DVN) going to get a good price for its international properties, but the $7 billion price tag that BP ( BP) paid is 40% more than I thought possible. It is a monster deal, and it allows Devon to develop all of its big U.S. properties without breaking the bank or needing more equity a la EQT ( EQT) ... although I badly want to be in that secondary.

Devon's either a huge believer that President Obama will see the light on natural gas or that he is a one-termer and the next president will embrace nat gas as a cleaner fuel than the president's "clean coal" choice. I had worried that Devon was adopting a bet-the-farm strategy on this U.S. gambit. But now that it got about a quarter of its market cap in cash from BP, the risky nature of the domestic plan is now off the table.

The group's moving up despite the resistance of the president and despite the decline in the nat gas futures, especially relative to the price of oil.

This deal will only fan the flames.

Two takeaways: Anadarko's ( APC) domestic and foreign properties are probably worth far more than we think after this new price tag, and the EQT deal is going to be so sweet that you should try to get in on this $44 pricing this morning. Can you imagine how hot this area is that the company can announce 12.5 million shares for sale yesterday and price it this morning? Even if it is down 3 from the high the other day, this is a fantastic piece of Marcellus Shale merchandise that you need to fight to get in on as soon as you read this.

If it hasn't been lapped up already by the big institutions that are so eager to cash in on the domestic game-changer, that is.

At the time of publication, Cramer had no positions in the stocks mentioned.
Jim Cramer, co-founder and chairman of TheStreet.com, writes daily market commentary for TheStreet.com's RealMoney and runs the charitable trust portfolio, Action Alerts PLUS. He also participates in video segments on TheStreet.com TV and serves as host of CNBC's "Mad Money" television program.

Mr. Cramer graduated magna cum laude from Harvard College, where he was president of The Harvard Crimson. He worked as a journalist at the Tallahassee Democrat and the Los Angeles Herald Examiner, covering everything from sports to homicide before moving to New York to help start American Lawyer magazine. After a three-year stint, Mr. Cramer entered Harvard Law School and received his J.D. in 1984. Instead of practicing law, however, he joined Goldman Sachs, where he worked in sales and trading. In 1987, he left Goldman to start his own hedge fund. While he worked at his fund, Mr. Cramer helped start Smart Money for Dow Jones and then, in 1996, he co-founded TheStreet.com, of which he is chairman and where he has served as a columnist and contributor since. In 2000, Mr. Cramer retired from active money management to embrace media full time, including radio and television.

Mr. Cramer is the author of "Confessions of a Street Addict," "You Got Screwed," "Jim Cramer's Real Money," "Jim Cramer's Mad Money," "Jim Cramer's Stay Mad for Life" and, most recently, "Jim Cramer's Getting Back to Even." He has written for Time magazine and New York magazine and has been featured on CBS' 60 Minutes, NBC's Nightly News with Brian Williams, Meet the Press, Today, The Tonight Show, Late Night and MSNBC's Morning Joe.