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Mad Mail: Maintaining Your Purchasing Power

Hey Jim: On Tuesday you had a great segment on Whirlpool and the idea that it was doing well of late because it was a "cyclical" stock that mutual funds tend to invest in at the beginning of a cycle when they sense an economic upturn in the near future. Great stuff! But you left me wanting more…what segments beyond home appliances are start-of-cycle segments? --Eddie

Cramer says: “Cabinets, faucets obviously. That’s Masco, Black & Decker...You just look around in your house. And the homebuilders – now the homebuilders are obviously on fire. I saw Pulte Home break out. HGX is a classic index. Everything in there is early cycle. BKX, classic index. Everything in there’s early cycle. Those are the ones that first start. Don’t forget the RTH, retailers. Also early cycle.”

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Hey Cramer: I know you have liked Schering-Plough in the past, but not now. As a physician, I have dealt with this company and their products for many years. From personal experience, their management and product promotion on the clinical side has been poor. They will announce layoffs next week. I expect more fallout from the Vytorin problem and I think this company is in trouble. What do you think? --Peter

Cramer says: “I felt that a lot of the press [made it] too hard to own this stock. Because the I think that the New York Times is doing some dynamite reporting on Vytorin, but you’re not going to find out anything good…Fred Hassan is a great CEO. I disagree with you, Peter, about the company’s longer-term prospects because I think Fred Hassan’s doing a lot of great stuff. But shorter term the pain from Vytorin articles is too great” and the stock’s down even though the rest of its peers are up.

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Dear Jim: Thank you for your analysis, your insights, and your prompt calls for appropriate regulatory action. I have been investing since 1973 (successfully until 2004). This strange market does not seem to be a historical repeat. Major negatives contracting domestic growth, world growth, and world trade will take years to work out. We will have to increase the money supply and accelerate the decline of the dollar. How do I maintain my purchasing power? --Jim in San Francisco

Cramer says: If you’ve done well, then the municipal bond market is offering some “incredibly opportunities.” Go for triple tax-free market of general obligation bonds rather than revenue bonds (the insurance on these is worthless). Also, as real estate prices come down, think about buying property. Cramer’s still expecting the market to bottom in the third quarter of next year. So buy before prices turn up. Other than that, only that major stocks with good dividends will help you retain your purchasing power.

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Dear Cramer: Even with all the turmoil in the financials, I don't understand why some of these bank stocks have fallen 80%-90%. Even after factoring in foreclosure costs, lenders generally recoup between two-thirds to one-half of a loan. Why have the stocks of so many banks fallen, on a percentage basis, much larger than the actual percentage of money lost? Thanks for your wisdom. Boo yah! --John in Pennsylvania

Cramer says: “Remember, they’re lending out nine times what they have. So it doesn’t take many failed projects to wipe out the capital. If they just, literally, lent out what they have, then, yes, they get a half back they’d be fine. But they’re usually lending nine times. So you can see, two projects go under, they could go under.”



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