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Cramer: $4 Gas Could Lead to Double Dip

Thursday, 24 Feb 2011 | 7:06 PM ET
Duck for Cover?
Cramer helps you understand today's action.

Should oil prices continue to climb, Cramer said Thursday, the U.S. economy could fall into a double-dip recession.

"I've never been a believer in the double-dip scenario," Cramer said. "But with $4 gasoline, it could happen, especially if high fuel costs create a palpable sense of inflation, which causes the Fed to tighten too soon."

Pricier gas also acts as a tax on the consumer and puts the brakes on any discretionary spending, Cramer said. As oil prices rose on Thursday, Cramer heard members of the media speculate crude could go to $200 a barrel. Cramer isn't buying it, but cautioned investors that if people repeat it in the press, it could become conventional wisdom.

Should costlier oil lead to a double-dip, the numbers companies reported in the last three to four weeks could be wrong. In many cases, the numbers would be too high and in turn, the multiple would shrink. In other words, the amount people are willing to pay for those earnings would change due to the uncertainty. It might not shrink the actual earnings, but would change how investors pay for it.

It remains to be seen whether the unrest that has swept across Northern Africa will spread to other oil-producing countries. Until there is some clarity on Libya, Cramer recommends sitting on the sidelines. Cramer doesn't think it's worth going in and buying stocks now, especially if the market continues to fall. He does, however, suggest buying good stocks that are down at least 10 to 15 percent. It's worth taking a look at underlying companies recently reported strong earnings, but still saw their stocks get hammered. Deckers and Salesforce.com are a few of Cramer's recommendations.

Cramer also suggests buying gold . Every investor should have 20 percent of their portfolio in the precious metal, he said.

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