Cramer's 'Mad Money' Recap: DEFCON 2 Is Here (Final)

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NEW YORK ( TheStreet) -- "We have at last arrived at DEFCON 2," Jim Cramer warned his "Mad Money" TV show viewers Tuesday.

Cramer said that the Currency Shares Euro Trust ( FXE), a key measure of the strength of the euro vs. the dollar, took out the critical $130 level that he warned about Monday, ushering in the possibility of a severe recession.

Cramer said that he sometimes struggles to put this market into context, but noted that with the euro continuing to weaken, the possibility of a nationalization of a major European bank is back on the table, as is the possibility, and probability, of big downgrades on the debt of one or more soverign nations. That, in turn, will lead to the likelihood of a severe recession, said Cramer, lowering growth worldwide.

"Our markets will fall in that scenario," said Cramer, and that scenario is becoming increasingly more likely.

Cramer reiterated his call for investors to raise cash and trim their positions in all stocks except those with high dividend yields. He said the master limited partnerships he's recommended still work, as do the REITs and the food stocks with big yields.

Cramer said that investors can take a chance on U.S. retailers like Ross Stores ( ROST) or Dollar General ( DG) as well.

Cramer also gave the nod to restaurant names with strong growth, names like Domino's Pizza ( DPZ) and Yum Brands ( YUM), as well as the high-growth domestic oil and natural gas stocks

Tale of Two Deep-Water Drillers

"A rising tide does not lift all boats, especially those with holes in them," Cramer told viewers as he compared two deep water oil drillers, Transocean ( RIG) and Ensco ( ESV), a stock which he owns for his charitable trust, Action Alerts PLUS.

Cramer said that shares of Transocean are trading just one point off their 52-week low, down 50% from their highs earlier this year, and for good reason. He said that while Transocean is the largest deep water driller, it's also the worst.

When it comes to off-shore drilling, the name of the game is the age of your fleet, said Cramer. For Transocean, the company's aging fleet averages 16 years old, meaning the company has higher maintenance costs and increased downtime. The company has issued 26 million new shares of stock, as well as debt, to help finance its ongoing operations and its 7.5% dividend yield is at risk of being cut as the company struggles with ongoing legal issues.

Contrast that to Ensco, where the average drilling rig is only seven years old. Cramer said Ensco has one of the youngest fleets out there, meaning they're the most technologically advanced and get the best results faster with less maintenance and downtime. Ensco may only have a 2.9% dividend yield, but Cramer said Ensco's yield is far safer than that of Transocean.

Shares of Ensco are also cheaper, said Cramer, trading at just 8.1 times earnings compared to 12.3 times for Transocean. That's why when it comes to the deep water drillers, Ensco, with its better balance sheet and younger fleet, is the stock to own.

High-End Sales Doing Jolly Well

In the next installment of his "Stocking Stuffers" series, Cramer sat down with Steve Sadove, chairman and CEO of Saks ( SKS), at the company's flagship Fifth Avenue store for the latest read on how the high-end consumer is doing this holiday season.

Sadove painted an upbeat picture of Saks' outlook, saying that sales this holiday season are going well, up 9% for the month of November and up 10% so far this year. He said that Saks is seeing strength across the board, but especially in shoes, handbags, jewelry and women's sportswear. Overall, Sadove said that high-end customers are feeling reasonably well and are spending accordingly.

When asked about the company's continued turnaround efforts, Sadove said that Saks has closed seven stores this year, but that decision has freed up not only capital and inventory, but also management expertise, to focus on higher growth areas.

Saks continues to expand its "Off Fifth" outlet footprint by adding three to five new stores annually. Sadove said that thanks to the Internet, along with the mobility of their clientele, Saks does not need to open a lot of stores in order to be successful.

Delving into the outlet concept a little further, Sadove noted that customers come to Saks for the products, the fashion and the service, but outlet customers come for the brands and the deals.

Finally, when asked about the company's finances, Sadove said that Saks continues to generate free cash and has little debt, which is why it has chosen to buy back shares of its own stock.

He said the company can also offer dividends and increase its capital spending, investing more in its stores as it needs to. Sadove called shares of Saks an "opportunity" for investors to buy stock, as the company has historically seen higher multiples for its shares.

Cramer continued his recommendation of Saks.

Off the Charts

Cramer went head to head with colleague Scott Redler over the chart of Oil Services HOLDRS ( OIH) ETF.

According to Redler, the daily chart of the OIH shows the group forming a bottom with an inverse head-and-shoulders pattern. However, this pattern is not yet complete and the ETF must rise to $132 before he would become bullish and expect to see the momentum carry the ETF to between $160 and $165 a share.

Redler's strategy would be to buy the OIH in scales on the way up as the momentum in the group increases.

Cramer said while he agrees with the premise that the oil services group could head higher as the price of crude continues to rise, he's not a fan of the technicians' strategy of following the momentum.

He said if the OIH is attractive at $132 a share, it's most certainty more attractive at today's lower levels. And as shares rise towards $160, Cramer said he would be a seller, and wouldn't be buying more as Redler indicated.

Lightning Round

Cramer was bullish on Cummins ( CMI), AT&T ( T) and Donaldson ( DCI).

Cramer was bearish on Computer Sciences ( CSC) and Sunoco ( SUN).

Serial Value Destroyer

In his "No Huddle Offense" segment, Cramer made a long-awaited change in his "Wall Of Shame" list of America's worst CEOs. He removed Andrea Jung from the top position on the list after Avon Products ( AVP) announced that it was removing Jung as CEO.

Cramer said that Jung was a serial destroyer of value at Avon and never solved any of the company's problems, even as the direct-selling model was thriving at other companies. He said while Jung fleeced Avon shareholders, she herself made a ton of money.

As predicted, shares of Avon rose 6% on the news, but Cramer said that Avon's board waited too long to remove Jung and it may take awhile for a new CEO to be found and to fix the company's lingering problems.

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

To contact the writer of this article, click here: Scott Rutt.

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At the time of publication, Cramer was long Ensco.

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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Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

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