Cramer's 'Mad Money' Recap: Facing a Worst-Case Scenario

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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 Decision

In 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 Backup

The 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.

Lightning Round

Here's what Cramer had to say about caller's stocks during the "Lightning Round":

Cisco Systems ( CSCO): "I think it's dead money. I don't see anything you want to buy there."

Cummins ( CMI): "I think the quarter isn't going to be good enough."

ABB Ltd ( ABB): "It's Europe and I will touch nothing in Europe right now."

BHP Billiton ( BHP): "It's a Chinese play and China is collapsing. It yields 3.6% and I think 4% is where it bottoms."

Prudential ( PRU): "I can't believe how low this stock has fallen. I can't get behind it here."

Netflix ( NFLX): "I don't want anything to do with Netflix. I think it's starting to slow."

Fighting Cancer

In the second "Executive Decision" segment, Cramer continued the oncology theme and spoke with Harvey Berger, chairman and CEO of Ariad Pharmaceuticals ( ARIA), a speculative biotech company also fighting the war on cancer.

Berger briefed viewers on Ponatinib, Ariad's drug to fight otherwise drug-resistant forms of leukemia. He said the data have been compelling and over half of the patients who have seen other drugs fail have seen success, with well-tolerated side effects. The company plans to file for regulatory approval for Ponatinib in the third quarter of this year.

When asked about Ariad's business model, Berger explained the goal is to build a fully integrated oncology company that discovers, develops and commercializes its own drugs without larger partners. He said that while the "go it alone" process is a difficult one, over the long term it will provide more value to shareholders.

To date, Ariad has discovered four cancer treatments and is working on development on all four. In the case of Ponatinib, the company is beginning to explore the drug's effects on other forms of leukemia. Berger noted that current estimates for the company do not yet include the potential for these other indications.

Berger closed by saying the best is yet to come for Ariad and the company is "very close" to realizing its dream of bringing those new drugs to market. Cramer agreed with Berger's outlook and continued to recommend the stock.

No Huddle Offense

In his "No Huddle Offense" segment, Cramer responded to the critics who claim the media is over-reporting the bad news in Europe and that the time to buy is now.

Cramer said that contrarian investing isn't a smart move at this point in the European crisis as so many things are still up in the air. There are still no compromises in Europe, nor any interest rate cuts in China. U.S. markets, such as the S&P 500, are still up for the year. That is not the definition of a bottom, said Cramer.

Cramer said the goal still remains to protect your portfolios, not try to outthink the media coverage.

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

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At the time of publication, Cramer's Action Alerts PLUS had no positions in the stocks mentioned.

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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