Cramer's 'Mad Money' Recap: Hedge-Fund Madness

Cramer's 'Mad Money' Recap: Hedge-Fund Madness
10/23/08 - 07:49 PM EDT
Forced selling by hedge funds is behind the late-day market volatility these days, Jim Cramer told the viewers of his "Mad Money" TV show Thursday.

He fears we may never see a bottom until the selling comes to an end.

Cramer said many hedge fund strategies have just been dead wrong, such as the betting on a Chinese recovery after the Olympics that failed to materialize. As evidence, he used the Baltic Dry Shipping Index and the Shanghai Composite Index to graphically show how much China's economy has slowed.

The result of hedge funds gone bad is forced selling, he said. At around 2:45 p.m. each day, hedge funds begin preparing for the next day's round of redemptions by liquidating their ill-conceived positions.

These billion-dollar liquidations, in turn, wreak havoc on the markets, causing huge late day declines and subsequent snap-back rallies. "These funds are getting killed," he said.
Cramer also blamed on what's known as "fund-to-fund managers," middlemen between the large hedge funds and their clients. These managers, who typically take a 1% to 2% commission for their services, often pressure funds for immediate redemptions, forcing managers to think only for the short term.
Cramer doesn't expect this trend to end anytime soon. Even worse, he expects to see a pickup in mutual fund selling about the time many investors receive their October statements and realize the magnitude of their losses. "This is when people will really start pulling their money out," he warned.
Until then, Cramer said this market hasn't bottomed yet. "Until the only ones left in stocks are the ones who never sell, we won't find a bottom," he said.
In the hunt to find high-yielding, recession-resilient dividend stocks, Cramer invited Kinder Morgan Energy Partners' chairman and CEO, Richard Kinder to talk about his company's whopping dividend yield.

Cramer explained that as a master limited partnership, Kinder Morgan must return all of its profits to its shareholders, and that's exactly what this natural gas pipeline operator has been doing. Kinder currently has a 8.6% dividend yield, and is expected to raise that yield 15.3% in 2009.
Given Kinder's long history of dividend raises, Cramer said money invested in the company will double every eight years. In fact, an investment made in December of 1997 would be up 213% solely on dividend yield, and had those dividends been reinvested, the return would be a stellar 498%. "I like this stock," he said.
Kinder explained that his company acts much like a toll road, collecting fees for the products that travel through it. He said the company is not affected by the price of natural gas and even has long-term through-put contracts in place to hedge against large scale declines in volume.
According to Kinder, his company's goal is simply to provide nice growth on top of a nice yield. The company continues to expand its pipeline system, connecting to both new natural gas sources as well as to new areas of demand.
Healthy Nuts

As evidence that some companies are still making money in this horrible market, Cramer welcomed Michael Mendes, president and CEO of Diamond Foods (DMND Quote - Cramer on DMND - Stock Picks) to the show to see if he's nuts for recommending this leader in the nut and snack category.
Cramer said the stock is up 51% since he last recommended it on Feb. 5, 2007.
Mendes said his company has brought innovation and excitement to what traditionally had been a commodity business. He said it has introduced new flavors and packaging to nuts and nut snacks, and is appealing to a younger demographic for the first time.

He said Diamond has positioned itself and its products as a healthy alternative to most other snacks.
Mendes said his company is working hard to increase distribution and break into non-traditional distribution channels. He cited the company's recent acquisition of the "Pop Secret" brand of popcorn from General Mills (GIS Quote - Cramer on GIS - Stock Picks) as an opportunity for the company to expand and innovate.
Cramer called Diamond a great company, citing its recent earnings beat by 6 cents a share as proof that Mendes' plan is working.
Mad Mail

In this segment, Cramer told a viewer that Apple (AAPL Quote - Cramer on AAPL - Stock Picks) and Google (GOOG Quote - Cramer on GOOG - Stock Picks) are two of the best run companies in America.
He said if these two companies can't rally in this market, then nothing can.
Lightning Round

Cramer was bullish on Duke Energy (DUK Quote - Cramer on DUK - Stock Picks), Eaton (ETN Quote - Cramer on ETN - Stock Picks), Qualcomm (QCOM Quote - Cramer on QCOM - Stock Picks), Apple (AAPL Quote - Cramer on AAPL - Stock Picks) and Google (GOOG Quote - Cramer on GOOG - Stock Picks).

He was bearish on Netflix (NFLX Quote - Cramer on NFLX - Stock Picks), General Motors (GM Quote - Cramer on GM - Stock Picks), Ambac Financial Group (ABK Quote - Cramer on ABK - Stock Picks), Broadcom (BRCM Quote - Cramer on BRCM - Stock Picks), Amylin Pharmaceuticals (AMLN Quote - Cramer on AMLN - Stock Picks), Mosaic (MOS Quote - Cramer on MOS - Stock Picks) and Amazon.com (AMZN Quote - Cramer on AMZN - Stock Picks).

Cramer: Lots of Stocks Aren't Low Enough

Cramer: Lots of Stocks Aren't Low Enough
10/23/08 - 01:09 PM EDT

This post appeared earlier today on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
The bad stuff is in the market. It just has to get more in. That's all. That's the conclusion you have to reach when you see companies like Terex (TEX Quote - Cramer on TEX - Stock Picks), which is valued at only a billion and a half dollars, or Joy Global (JOYG Quote - Cramer on JOYG - Stock Picks) at $2 billion and change or McDermott (MDR Quote - Cramer on MDR - Stock Picks) at $3 billion.

In other words, forget about the stock prices. They are almost all absurd unless we are headed into a recession of such magnitude that companies start showing severe losses in the first quarter. Think about the market cap size. If Terex, which is actually a pretty good machinery company, can sell at a billion and a half dollars -- about the price that some acquisitive company might have paid for a division of Terex a year ago -- why can't it sell at $1 billion? How about $800 million? What's to stop it? The sellers at this point obviously don't even care about it, not one bit. They just want money. The buyers have had their heads twisted off and don't want anything more to do with it. No one wants to recommend it because the estimates are too high.
And without a dividend, it has no protection; besides, people might perceive that the dividend can't be paid -- a la Freeport (FCX Quote - Cramer on FCX - Stock Picks) -- and sell it anyway.
Last night I had a call from an employee of Parker-Hannifin (PH Quote - Cramer on PH - Stock Picks) who wanted to know what I thought of the stock at $37. I know I have liked this company for years, just a solid metal bending company that has done many things right and really represents the best of American manufacturing. But I took a look at the yield, 2.63%, and said simply that it hadn't fallen enough.

That's how I feel about so many stocks that are owned by the wrong owners with the potentially right owners either on the sidelines or petrified -- not down enough yet.

And because of the phony nature of how the market trades -- the price could be up or down 4 in a heartbeat -- why not wait until it at least yields something more worthy? Because with the exception of NRG (NRG Quote - Cramer on NRG - Stock Picks), there hasn't been a single opportunistic offer of a company whose stock has been beaten down beyond reason.
Except that it could be beaten down beyond reason by another 10% or 20% and no one would care.
At the time of publication, Cramer was long Freeport-McMoRan.