Mad Money

Cramer: Blame Washington for Your Troubles?

The Obama Effect

Look no further than the nation's capital if you're wondering why the Dow dropped 226 points Thursday, Cramer told Mad Money viewers. Between a stimulus package that will deliver much less than expected and a seeming hint from the president that bank shareholders are not his concern, there was little chance that Wednesday’s rally would continue.

Sure, investors could expect a little profit taking after the Dow jumped 201 points Wednesday. And a number of bad earnings reports didn’t help either. But what really pushed stocks down in Thursday’s trading session was total disappointment with the new administration’s spending plan, Cramer said. The bill that the House passed didn’t offer any help to the financials, it didn’t create the number of jobs needed, and housing – our problems’ ground zero – was completely forgotten.

Cramer said he was looking for more infrastructure spending, and initiatives to boost the tech sector. But what we got was some money for manufacturing and a whole lot of pork. President Obama neglected the crucial importance of asset-backed bonds and the mortgages that underlie them, too, the very things weighing so heavily on the banks right now. Without a solution to the housing problem, those banks will never recover. And neither will the markets and the economy if the financials don’t get back on their feet. 

Then the new president announced today that he thought bank executives’ attempts collect bonuses were “shameful.” Cramer caught in Obama’s tone a signal that participants in the proposed “bad bank” plan will pay the price, whether through elimination of their dividends, appropriating their earnings or taking part of their common stock. No matter what the consequence, it’s a clear sign that banks won’t emerge as strong as we need them to be.

Obviously this isn’t good news for investors. So Cramer recommended that they stick with defensive names like Kraft Foods and Kellogg, Colgate-Palmolive and Kimberly-Clark, Coke and Pepsi and Altria and Celgene. They should offer the consistent growth needed to keep portfolios in the black until the markets and the economy turn up. 

Cramer's charitable trust owns Altria.

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