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Time to Hoard Cash - Cramer's Mad Money (10/6/08)

by: SA Editor Joan Wickham October 06, 2008 | about stocks: CHTT    

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Joan Wickham

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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday, October 6.

Cramer's Plan for the Government

With the market dropping as many as 800 points in intraday trading, investors have to protect themselves. He said while it's not time to sell everything, he advised viewers that if they need cash in the next five years, a Federal Deposit Insurance Corp. (FDIC) insured savings account is the only way to guarantee your money will be safe. Cramer went on to say that investors would be foolish to keep all of their money in stocks in such a volatile market. With some many questions still looming about the recently passed bailout package, Cramer outlined his plan for what he government should do next.

  • First, the FDIC needs to stop seizing banks and announce once and for all that they're done with seizures. With the bailout package now in place and the FDIC insurance limits raised to $250,000 per account, he said the market has the tools it needs to work out the rest of its problems without government intervention. Furthermore, he said, a bold statement from the FDIC that the seizures are over will go far to stabilize the market.
  • Second, he said, the government needs to start putting the newly allocated $700 billion under the Troubled Asset Relief Program to work. He suggested first buying individual home loans, a move which will allow the government to immediately end the foreclosures and begin the renegotiation process to lower the terms of the troubled mortgage loans while taking the toxic assets off the balance sheets of the banks.
  • Lastly, Cramer said the government should buy the credit default obligations (CDO's), but only after it has exhausted the individual loan options. For these CDO's, Cramer suggested they be grouped by geography and vintage, so the government can hold them until their values increase, then sell them in an orderly manner.

Cramer said if the government follows this plan, only then can it avoid a repeat of the Great Depression. Until then, however, Cramer said it doesn't hurt to have a little cash socked away in savings. Not all investors are the same, though, so if you don’t need money in the near term, for the next five years, then Cramer advises you to stay with the market. He doesn’t want every investor jumping ship. He’s still bullish on stocks for the long term. He just wanted investors who needed to raise chance to have the opportunity. For those people, in this environment, cash needs to be their biggest holding.

Cash Is King

Cramer returned to the old adage "it's better to be safe than sorry" when reiterating to viewers that they should sell at least 20% of their portfolios and move that money into safe, FDIC insured savings accounts. Cramer again reminded viewers that they can't buy even defensive stocks without first taking profits and selling stocks to build a strong cash position. He again advised investors to have enough cash on hand for things like buying a home, paying for college, buying a car or helping parents retire. Cramer said investors should have cash on hand and not rely on the markets to be there for them. Until the chance of another Great Depression is off the table, Cramer said the only prudent thing to do is horde some cash. He said he doesn't take the term "depression" lightly, but he feels the market could retest the lows of October 2003, when the Dow traded at just 7,700. Are we better off today than in 2003? Cramer said, "No." With the huge financial crisis, the risk of a worldwide slowdown, and continued energy problems still looming, the possibility of further declines in the markets are very real. The only stocks Cramer said he will even go near are the food, drug, and packaged goods makers, along with high dividend paying stocks where the dividends are protected by strong earnings, and companies with large cash positions relative to their current valuations. Other than these stocks, he said, cash is the place to be.

A Flight to Safety -Chattem (CHTT)

Zan Guerry, chairman and CEO of personal products maker Chattem, spoke to Cramer who wanted to see if the company is a safe, recession-proof place to invest. This is exactly the kind of stock Cramer wants investors to consider in a market as tough as this. Guerry said that most of Chattem's products, including Gold Bond, Icy Hot and Act mouthwash, are things people have to use regardless of the economy. And the company’s record Wal-Mart sales for the entire month of September prove it. He said the company is in a strong position, with a solid balance sheet and $5 a share of free cash flow. When asked where the best place was to invest that free cash, Guerry said that Chattem is being conservative and is investing in advertising and building its brands. However, Guerry also noted that if an acquisition opportunity arises, the company will certainly seize that opportunity. Cramer said Chattem has both strong brands and declining raw costs going in its favor. Chattem, he noted, also recently pushed through a 5.4% price increase to further bolster its bottom line. With 65% of the company's sales coming from its six top brands and all six of those brands being No. 1 in their categories, Cramer called Chattem one of the ultimate safety stocks.

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This article has 12 comments:

  •  
    Oct 06 10:06 PM
    "(FDIC) insured savings account is the only way to guarantee your money will be safe."

    The dollar may still be a dollar with FDIC insurance, but the dollar might not be worth much.
    Reply
  •  
    Oct 07 03:09 AM
    Cramer is an excellent trailing indicator. If you have not already set aside some money to catch some value when the market starts to rebound, I'm not sure now is the time to do so. Can the market fall more? Of course, but the risk / reward ratio for equities is getting better each day, if you rode the market down this far why risk missing the upswing? No one wants to be that guy that times the market perfectly in reverse.

    Good luck and keep your wits about you.
    Reply
  •  
    Oct 07 03:55 AM
    Good comments .. there are many good industrials, oil sevice, and commodities(to mention a few) that are certainly excellent values and opportunities abound .. don't panic and use common sense, plus always do you homework. This is uncharted water unless you are a very old hand. And technical analysis will not show your entry..take small positions and stay on top
    Reply
  •  
    Oct 07 07:36 AM
    Cramer is a moron!
    Reply
  •  
    Oct 07 08:39 AM
    This is insane - if you read his newsletter Mr. Cramer has been giving buy recommendations EVERY SINGLE DAY. And he comes out after all that and says we need to be conservative.

    And along with CNBC, he's apparently completely forgotten his July 15 botttom call.
    Reply
  •  
    Oct 07 09:20 AM
    The FDIC has a little less than 4/5ths of a cent on hand for every dollar of deposits and 1.25 cents for every dollar of insured deposits. There is approximately $45 billion in FDIC’s capital fund that would be used to payback or cover insured deposits totaling about $4.29 trillion. There is approximately $2.1 TRILLION in uninsured funds. I doubt that people would get a “warm & fuzzy” feeling if they new the facts and assessed the risk. Cash is king; real cash in hand.
    Reply
  •  
    Oct 07 10:11 AM
    Cramer should be off the air!! Enough said!
    Reply
  •  
    Oct 07 11:24 AM
    Cramer should be viewed as an entertainer only. Some investing themes he discusses on the show are pretty interesting, but people should not rely on him for any specific stock picking advice. The lemmings that watch his show and jump into stocks he spotlights the next day sadden me.
    Reply
  •  
    Oct 07 01:14 PM
    I have been a cramer watcher and defender for a long time, but now this is too much! Sell 20% of your portfolio at the bottom??? Cash is king NOW? Anyone that follows him deserves what they get. Still remember him talking up google to 700 per share...
    Reply
  •  
    Oct 07 02:46 PM
    Wow! What a sack of crap! Thank God Cramer doesn't work for the government.

    " With the bailout package now in place and the FDIC insurance limits raised to $250,000 per account, he said the market has the tools it needs to work out the rest of its problems without government intervention."

    Which government intervention might that be? What here isn't government intervention? ITS ALL GOVERNMENT INTERVENTION!

    "Furthermore, he said, a bold statement from the FDIC that the seizures are over will go far to stabilize the market."

    No, that would be seen as empty talk. It would be the last seizure until the next one comes along. Nobody but Cramer would buy that.

    "He suggested first buying individual home loans, a move which will allow the government to immediately end the foreclosures and begin the renegotiation process to lower the terms of the troubled mortgage loans while taking the toxic assets off the balance sheets of the banks."

    What are you kidding me? First, do you know how many individual loans there are? What would be the criteria in deciding who's loan to rescue? Those that are 3 or 4 payments behind? Well, count me in. I haven't missed a payment yet, but I would love to get mine renegotiated too. Talking about moral hazard. We don't need to make matters worse.

    "Lastly, Cramer said the government should buy the credit default obligations (CDO's), but only after it has exhausted the individual loan options. For these CDO's, Cramer suggested they be grouped by geography and vintage, so the government can hold them until their values increase, then sell them in an orderly manner."

    Impossible! The market on these things is far too huge. I like better the clearing house the Fed is setting up. Anything that adds transparency to the situation will reduce the fear associated with these assets. Additionally, it will provide an actual marketplace to trade them as the market re-liquifies.

    "Cramer said the only prudent thing to do is horde some cash. He said he doesn't take the term "depression" lightly, but he feels the market could retest the lows of October 2003, when the Dow traded at just 7,700"

    This is just the kind of talk I like to hear. Capitulation only comes with virtually every talking head and wall street pundits telling us the sky is falling. A bottom must be at hand.
    Reply
  •  
    Oct 07 06:26 PM
    Cramer is an idiot!
    Reply
  •  
    Oct 10 11:02 AM
    Looking at the devastation in the markets this past week... Cramer's advice on Monday morning doesn't look so bad in the short term. Saved investors a nice chunk of change if they immediately followed his advice in the morning and wait out the continual drops in the market all week long.
    Reply
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