Why Inflation Is Good Right Now

Serious inflation is only a matter of time given the rate at which the U.S. government is printing money to throw at its myriad problems these days. Typically, inflation is seen as a bad thing. That’s why Federal Reserve Chairman Ben Bernanke seemed so concerned about it even though Cramer was screaming, “They know nothing!”

Economist and analysts of all kinds think inflation will wreak havoc on America’s already weak economy. But Cramer, ever the contrarian, took a different side of the argument on Friday, saying that inflation and the weaker dollar it creates are actually good for U.S. companies. A diminished dollar overseas, he said, translate into more profits here at home.

Inflation isn’t such a bad thing, considering a deflationary spiral not seen since the Great Depression has been a real threat for the past 18 months or so. Beyond that, though, look at the damage a strong dollar has caused American firms.

Heinz’s double-digit international growth turned into a loss because of currency translation. Tech companies making inroads in emerging markets saw none of those gains for the same reason. Industrials were at a competitive disadvantage to their overseas peers as well. This list goes on.

So a weak greenback allows consumers in other countries to buy more American products. McDonald’s cheeseburgers, Coca-Cola soft drinks and snacks, even our toxic bonds and collateralized debt obligations, Cramer said. The boost to business then attracts investors, further strengthening a company’s position.

So how do you trade this “reflation” trend, inflation tips the scales back from deflation? Gold, obviously, is a classic weak-dollar hedge, though Cramer’s favorite in that sector, Agnico-Eagle Mines, has already run too much. But El Dorado still works.

Oil is another industry that would normally work as a reflation play, but it, too, is up big lately. Aside of BP and its 8.4% dividend yield, Cramer recommended waiting for most of the oil patch to pull back before buying.

The stocks that might work best in this situation are the aforementioned Coke and Mickey D’s. They are often the companies about which Wall Street worries the most when the dollar is strong, so they stand to gain the most when its value overseas is declining. Combine this with commodity prices heading lower and KO and MCD have a good chance for big, big profits, Cramer said.

McDonald’s and Coke get 66% and 75% of their sales from abroad, respectively. So the weak dollar should have a significant impact on year-over-year earnings, for the better. Both businesses are strong, too, though. So it’s not like they’re hopes are pinned to a currency translation. MCD’s coffee and smoothie rollout in full swing, February same-store sales were up, and commodity prices are down. The stock offers a 3.7% dividend yield despite the 2.2% it has historically. If MCD heads back to that level, then this $53 name will be worth $79.

Coke’s just as promising. Despite being hedged already to the yen and euro, there is still potential for returns from outside Europe and Japan. The proof: Volume growth is up in all regions except for North America, which is down 1%. The company recently upped its dividend 8% -- a great sign of confidence during a recession – which right now yields 3.7%. The five-year average is 2.5%. A move back to the average means KO would fetch $62, $20 higher than its present trading price.

So inflation’s back, and that’s OK with Cramer. He recommended that investors buy gold through El Dorado or McDonald’s and Coke, the weak-dollar plays.

Cramer's charitable trust owns BP.

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