Cramer’s ‘State of the Market’ Address

The Dow may have climbed 279 points Wednesday, Cramer said during his special State of Cramerica show, but President Obama needs to fix the financials before we see a full recovery. It doesn’t matter how well the rest of the market’s holding up. Everything depends on the banks.

That’s why the Dow lost 332 points yesterday, despite strong earnings recently from a good number of companies. IBM , Johnson & Johnson , General Mills, Altria , even JPMorgan Chase, all delivered better numbers than you’d expect during a recession. And those are just a few names from the longish list of top performers. But the financials are too important for these quarterly reports to be enough to lift the market.

So the pressure’s on Obama to save this sector. Will the new administration rescue good banks like JPMorgan without destroying their common stock, while at the same time preserving the bonds and preferred stock of struggling banks like Citigroup and Bank of America? The market’s still fighting back to its feet after the destruction of Lehman Brothers’ bonds and preferred shares, so this point is crucial. And if Obama does pull this off, will his stimulus package spark a much-needed rebound in the second half of 2009?

Cramer created an Obama Accountability Index, consisting of Bank of America , Citigroup, Caterpillar , General Electric, General Motors and JPMorgan chase, to track the new president’s progress. It’s an equal-weighted index that starts at 100, using Wednesday’s closing prices as a baseline. To bet with Obama, you buy these stocks. To bet against him, you short them.

The reasoning behind these choices is this: The performance of Bank of America and Citigroup, the most troubled of the big financials, depends on the solution Obama’s team finds to save them. JPMorgan is there to gauge how healthier banks are helped, without destroying their equity. Caterpillar will measure the strength of the infrastructure stimulus. The auto industry needs a long-term resolution, so GM will monitor that. And General Electric is the quintessential diversified conglomerate, meaning the company should rebound with the economy if Obama comes through.

This index will grade Obama’s success as president. If he fails, Cramer said, so does the stock market.

General Electric is CNBC’s parent company.

Cramer’s charitable trust owns Altria, General Electric, JPMorgan Chase, Johnson & Johnson and General Mills.

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