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NEW YORK ( TheStreet) -- Investors need a game plan to deal with worst-case scenarios, Jim Cramer warned "Mad Money" viewers Monday. But what exactly is the worst case? Cramer laid it all on the line in plain English. Cramer said there are two worst-case scenarios being floated by the bears. One is the markets will return to 2011 lows, with a 10% decline in the Dow Jones Industrial Average. The other assumes a return to the 2009 lows that saw the Dow touch 6,500, a full 50% decline from current levels. So could the markets return to the lows of last year? Cramer said they could indeed. The situation in Europe is worse now than in 2011 while China has cooled and the economies in India and Brazil have decelerated. Couple that with the return of gridlock in the U.S. political picture and falling employment, and a 10% decline in the markets seems par for the course, said Cramer. On the plus side, however, Cramer noted that unlike 2011, the U.S. housing market has stabilized, auto sales are better and corporate profits and balance sheets remain strong. Thus he only sees a 50/50 chance of the markets taking another 10% plunge. But what of a 2009-style market collapse? Cramer said this scenario assumes a total collapse in Italy and Spain, events that would send all of Europe, and with it the U.S. and the rest of the world, into a severe recession. According to the bears, our Federal Reserve is out of ammo to prevent such a catastrophe. But Cramer said that 2009 is totally "off the table" as the markets are in far better shape now than they were then. Credit is far easier to come by, he said, and many companies have been raising their dividends as their balance sheets have been improving. That makes stocks the only game in town when compared to Treasuries and other bonds. Given these strong profits and high yields, Cramer said there is no way stocks can lose 50% of their value from here.
In closing, Cramer said the worst case is 2011, not 2009, and stocks could fall another 10% to 12% from current levels, but there's no chance we'll see a 50% decline any time soon.
Executive DecisionIn the "Executive Decision" segment, Cramer spoke with Daniel Junius, chairman and CEO of ImmunoGen ( IMGN), a biotech stock that's soared 79% since Cramer first recommended the company in November 2009 and 27% since Cramer last spoke with Junius on Sept. 26. Junius provided Cramer with an update on the company's new drug, presently named TDM-1, a treatment for breast cancer. According to data just released at the American Society of Clinical Oncology conference, the Phase 2 studies of TDM-1 have shown the drug works better than present treatments and has a third fewer side effects for patients. ImmunoGen is now seeking priority review for TDM-1 at the U.S. Food and Drug Administration as oncologists are very enthusiastic to begin using it. When asked about the potential revenue stream for TDM-1, Junius confirmed that ImmunoGen did enter a joint partnership in 2000 that limits the royalties his company can receive, but even with smaller royalties the potential for TDM-1 is enormous for the company. Junius said the company had no idea back in 2000 that TDM-1 would see such great successes. Given the potential for TDM-1, as well as for the many other drugs in the ImmunoGen pipeline, Cramer continued his recommendation of the company.
The Fed Needs Some BackupThe Federal Reserve is not the answer, Cramer said, sounding off against those who feel lower interest rates or another round of quantitative easing will fix all that ails our economy. Cramer said the Fed has already done all it can and it's now up to the U.S. Congress to instill confidence and for the leaders of Europe to get their act together. With the 10-year Treasury yielding 1.5% and likely headed down to just 1%, Cramer said rates simply cannot go much lower. In fact, with interest rates already at historic lows, foreign and domestic investors are better off buying real estate, not stocks or bonds at these levels.
Cramer said the Fed's bond-buying initiatives have worked and the housing and auto sectors are already reaping the benefits. But the Fed can't do anything more. Who does have the power to stimulate the U.S. economy? Cramer said that job lies with the Congress, which could easily provide the markets with certainty and stimulus to kick-start commercial spending. Companies don't like to begin operations or expand in times of uncertainty, yet that's exactly what we're likely to have until November. Cramer said investors should pay attention to Fed Chairman Ben Bernanke's testimony on Thursday, but realize that ultimately his words won't mean much for the markets anytime soon, as our problems can't be solved by the Fed.