Cramer's 'Mad Money' Recap: The Power of Hedge Funds (Final)

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NEW YORK ( TheStreet) -- "Today's market action wasn't because of China's soft landing," an upbeat Jim Cramer told the viewers of his "Mad Money" TV show Thursday, "it was because hedge funds overreacted to the news."

In a inside look into the minds of big money managers, Cramer said after running a hedge fund himself for many years, he knows how these guys think. "They all run off the same playbook," he said, and are under constant pressure to make money. That pressure, in turn, means fund managers must react daily, sometimes hourly, to the news of the day.

Cramer explained that in 2008, hedge funds were all betting on the rise of commodities like oil and copper, thanks in large part to an insatiable appetite for these items from China. When China's economy topped out, these funds were all caught off guard, said Cramer, and with margin and redemption calls looming, the hedge funds cashed out hard.

In 2009, Cramer said the Chinese stimulus kicked in, and the hedge funds came roaring into the same stocks they fled in 2008. This move back into the markets helped send the Dow from 6,500 back to 11,000, said Cramer, led by the oils, banks and technology.

However three months ago, Cramer said China realized its stimulus was out of control and hit the brakes. Just as before, the hedge funds once again sold everything, sending the markets lower.

But now, just four days ago, news that Chinese imports and exports are up, caused the hedge funds to again change course and roll back into the market.

Cramer said the fundamentals of individual stocks certainly do matter, but the movements of hedge funds, which are amplified by margin buying and the new double and triple levered ETFs, can put tremendous pressure on the markets. Cramer said a single fund managing $500 million can now control as much as $2.25 billion worth of stock, and that moves markets.

Bullish Pet Foods Market

"The mini-bull market in pets and pet foods is still alive and well," Cramer told viewers. That's why he once again welcomed Richard Wolford, chairman, president and CEO of Del Monte Foods ( DLM) to the show. Shares of Del Monte are up 10% since Cramer last recommended it on March 9.

Wolford said Del Monte saw opportunity in the pet food business years ago, and realigned its portfolio to acquire more pet brands like Meow Mix and Milkbone. Since then, he said the company has been cutting costs and improving its margins, all while building a great business for the 55 million households that have pets.

Wolford said there are still many ways to innovate in the pet business, such as expanding their product lines to include new products that offer health benefits and better eating for pets. He said Del Monte has lots of room to grow organically.

Wolford said overall, Del Monte has had a great year, as more people are eating at home, and foods like fruits, vegetables and tomato products are the perfect fit for a country fighting obesity. He said the ad spending the company has be doing is providing cumulative benefits, and helping to build great brands.

Finally, when asked about the company's use of capital, Wolford said Del Monte has been reducing its leverage for the past two years and is now comfortable with its debt level. As a result, it has been able to boost to the company's dividend and stock repurchase program.

Cramer said "this stock is so not done," adding it was very cheap.

Brazil's Rising Star

For the fourth installment in his series on "macro trends that cannot be stopped," Cramer turned to Brazil and its burgeoning middle classl. He said this once third world country is now a global economic power, with a huge middle class that's grown by 10% in just the last five years.

Among his first Brazilian pics were the banks, who are benefitting from a credit revolution in Brazil as more and more consumers are buying on credit. Cramer said Itau Unibanco Holding ( ITUB) and Banco Bradesco ( BBD) are among his favorites.

For utilities, Cramer gave the nod to CPFL Energia ( CPL), a stock up 13% since last recommending it on Aug 3. He also noted home builder Gafisa ( GFA) as another way to play the middle class expansion.

Finally, Cramer recommended AmBev ( ABV), the country's largest beer and soft drink bottler with a 3.6% yield.

Cramer said he would be remiss if he didn't also mention Brazilian mineral stocks like Vale ( VALE) and Petrobras ( PBR), although both of these stocks, he said, are not tied to the rise of the middle class but rather its great use of its natural resources.

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Cramer spoke with Sen. Tom Coburn (R., Okla.) about the U.S.'s amazing opportunity to avoid a liquidity crisis, like Greece is facing now, by issuing $2 trillion worth of 30-year treasury bonds to lock in low interest rates.

Coburn said those in Washington are focused only on short-term gains, and are afraid to spend $1 today to avoid spending $12 later. He advocated not only issuing $2 trillion to shore up the Treasury, but also $1.6 trillion more to shore up both Fannie Mae ( FNM) and Freddie Mac ( FRE). "The demand is there," he said.

Coburn acknowledged that such a plan would cost some $60 billion, but said not doing it would cost far more, as the country is poised for a liquidity crisis similar to Greece in about two years. He said rates will most certainly be higher then than they are now.

Cramer equated such a plan to a home owner locking in a 30-year fixed rate mortgage and agreed with Coburn that such a plan is vital to America's stability and its future.

Lightning Round

Cramer was bullish on Aruba Networks ( ARUN), Akamai Technologies ( AKAM), Procter & Gamble ( PG)and Bank of America ( BAC).

He was bearish on Mexican Economic Development ( FMX)and Linn Energy ( LINE).

-- Written by Scott Rutt in Washington D.C.

To watch replays of Cramer's video segments, visit the Mad Moneypage on CNBC .

Want more Cramer? Check out Jim's rules and commandments forinvesting from his latest book by clicking here.

For more of Cramer's insights during the Lightning Round, clickhere .

At the time of publication, Cramer was long Bank of America.

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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