Cramer: Long Live Deflation

This recent rally, started last week and continued today, is real, Cramer said during Monday’s Mad Money, and investors have deflation to thank for it.

Oil, natural gas, gold, copper, grains – commodities prices are coming down, and it’s having a ripple effect throughout the markets.

Why do you think the banks are doing so much better now? It’s because the inflation the Federal Reserve was always so concerned about is gone, and the central bank is now free to cut rates – and Cramer expects it will. Because the Fed sets the rate that banks can charge their customers interest, lower rates mean more profits for the banks. Now their stocks are reacting accordingly.

Another benefit of this deflation is that the U.S. is looking attractive compared the overseas markets, propelled by high commodities prices, that now are in decline. This is why the dollar is so strong, Cramer said.

All the companies that were forced to raise prices to compensate for rising raw costs should cash in as those costs come down. After all, it’s not like they’re going to lower their prices in tandem with the declining commodities. Nope, they’re going to book those profits and then report a better-than-expected quarter.

Another great development: Geopolitical turmoil isn’t driving up the price of oil. Even Russia’s conflict with Georgia won’t do it. Oil is a matter of supply and demand, and in the U.S. right now there’s less demand and too much supply.

So what’s worth buying in an environment such as this? Cramer likes his Fortress Four banks – Bank of America, JPMorgan Chase, Wells Fargo and US Bancorp – especially US Bancorp, a cheap stock he said he’d buy aggressively right now.

Retail’s also working thanks to lower gas prices. High multiple stocks in the biotech, health care and food and beverage sectors should outperform, Cramer said, because their future earnings are valuable now that inflation is less of a concern. Tech, too, is buyable as oil goes lower. Google, Apple , Intel , Microsoft and Research in Motion (ahead of the BlackBerry Bold release) are all worth consideration.

Cramer reiterated his calls on Disney, UPS and Panera Bread, stocks he recommended on the idea that better times were ahead for the market. On Monday, he added CBRL Group, better known and Cracker Barrel, to the list. Like a lot of companies, costs have come down for CBRL. Plus, the stock’s cheap and management’s been buying it back hand-over-fist.

Inflation is dead, Cramer said, and long live deflation.

Questions for Cramer?

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