Cramer: Dow Could Drop Another 14%, Oil's Going to $50

by: SA Editors October 06, 2008 | about stocks: DIA / GIS / K / KFT / OIL / PG / USO    
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From Jim Cramer in New York magazine (emphasis added):

What will New York look like a year from now? The answer: bad and probably worse, and perhaps downright catastrophic. Three degrees of awful. The first step was passing the bank-bailout legislation. Now that it’s done—and if it didn’t get done we would have been looking at a guaranteed economic collapse—the critical issue will be presidential leadership. And while any president will be an improvement over the current one, there is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression...

At this time next year, I could see the Dow as low as 8,300. That’s more than 40 percent off its October 2007 high of 14,164. On Main Street, that means a further slowdown in consumer spending, as buyers feel poorer, and another hit for 401(k) and college savings accounts. For Wall Street, it means more bank closures and mergers and still more layoffs. The two remaining independent commercial banks–née–investment banks, Goldman Sachs (GS) and Morgan Stanley (MS), will have to fight mightily to remain independent. The bet here is that Goldman makes it but Morgan Stanley succumbs to one of the four emerging megabanks — Citigroup (C), JPMorgan (JPM), Bank of America (BAC), and Wells Fargo (WFC)...

In terms of investing between now and next fall, I’d buy the stocks of only companies you can’t not use—Kellogg’s (K), General Mills (GIS), Kraft (KFT), P&G (PG). You can’t trust anything to do with financial paper — there’s still too much uncertainty (if a bailout bill does pass, at what price will the toxic bonds be marked?). And commodities have been bid up too high — demand soared as investors sought shelter from stocks — to buy for some time. Oil’s going to $50 on weaker demand; when it gets there, we can revisit the oil stocks.

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This article has 79 comments:

  •  
    Oct 06 02:40 PM
    few comments on seeking alpha mean market my be in bottom range. banks are short option premiums. they have to sell and hedge. nobody else. retail got blown out already. now the talking head professionals on tv are scared. so can we buy stocks on alternative energy when their customers are still not having problems getting financing. if house prices keep falling it does not mean crap . not everyone is leveraged to the moon. easy to say oil 50. but when oil was 58 solars were hot. inflation is still on horizon
    Reply | Link to Comment
  •  
    Oct 06 02:43 PM
    It is interesting you mentioned oil going to $50 dollars..One of the members of Myinvestorsplace.com sent me a chat that Richard Rainwater has started buying oil again... he bought at $14 in 1998 ...watched it go to $10.00 ...then to the $140s.. maybe he is right..who do you really believe Cramer or Rainwater???
    Reply | Link to Comment
  •  
    Oct 06 02:44 PM
    Yes indeed, inflation and a weaker dollar are still on the horizon. Oil may go to $50 (though I doubt it), but the long term trend is to $200 and possibly beyond.
    Reply | Link to Comment
  •  
    Oct 06 03:00 PM
    Inflation is no longer the enemy. Deflation is here and here to stay for a while. Is there a single economy which will benefit from a combination of falling consumer demand in the US and EU and falling prices for commodities? The EU and US economies are all over-leveraged and still have credit losses and housing corrections to work through. Under such a scenario China and India have excess capacity for manufacturing (China) and outsourced professional labor (India.) Brazil, Russia, Venezuela, the gulf states and Australia are all commodity producers who will also take serious hits. During a period of global deleveraging and a crisis of confidence investors will run to the reserve currency which is currently the USD and potentially to gold. The issue with gold as a hedge at this point is that it serves no economic purpose and is typically an inflation hedge, one which may not hold up during a deflationary period. Whether through dumb luck or a nefarious conspiracy the US seems destined to keep its position at the top of the hill in the short to intermediate term simply because there are no cash rich buyers in this overleveraged and highly intertwined global economy.
    Reply | Link to Comment
  •  
    Oct 06 03:07 PM
    Wow what a prediction. I always like Cramer because he says what he thinks. He is not always right but at least he goes on the limb.
    Reply | Link to Comment
  •  
    Oct 06 03:07 PM
    Cramer is going to need to find a new day job soon...
    Reply | Link to Comment
  •  
    Oct 06 03:09 PM
    Cramer is going to be replaced with the show" What Would Buffet Do?" CNBC will pass out little wrist bands with WWBD
    Reply | Link to Comment
  •  
    Oct 06 03:10 PM
    My neighbor came over this morning. He reported that he had sold EVERYTHING! STOCKS, MUTUAL FUNDS . . . ALL! If that isn't capitulation and fin is, I'll put in with you. My guess is that this IS THE BOTTOM.
    Reply | Link to Comment
  •  
    Oct 06 03:12 PM
    Cramer says...

    "At this time next year, I could see the Dow as low as 8,300."

    Cramer... Such an optimistic fool.

    I could see the Dow as low as 8,300 next week!
    Reply | Link to Comment
  •  
    Oct 06 03:13 PM
    David Allen

    You must be a very young man. Read a few books on economic history...

    Welcome to the ride....
    Reply | Link to Comment
  •  
    Oct 06 03:22 PM
    Wow... Cramer for Obama..

    I just cant agree Jim, he and his new spending and taxes frighten me

    Thanks for the run but I'm looking elsewhere for help
    Reply | Link to Comment
  •  
    Oct 06 03:41 PM
    mixter... And here they are... The Congressional "vote switchers"

    Republicans, No to Yes (25)

    Arizona _ John Shadegg.

    Florida _ Vern Buchanan, Ileana Ros-Lehtinen.

    Illinois _ Judy Biggert

    Louisiana _ Rodney Alexander, Charles Boustany.

    Michigan _ Joe Knollenberg, Peter Hoekstra.

    Minnesota _ Jim Ramstad.

    North Carolina _ Howard Coble, Sue Myrick.

    Nebraska _ Lee Terry.

    New Jersey _ Rodney Frelinghuysen.

    New York _ Randy Kuhl.

    Ohio _ Jean Schmidt, Pat Tiberi.

    Oklahoma _ Mary Fallin, John Sullivan.

    Pennsylvania _ Charles Dent, Jim Gerlach, Bill Shuster.

    South Carolina _ Gresham Barrett.

    Tennessee _ Zach Wamp.

    Texas _ Mike Conaway, Mac Thornberry.

    ___

    Republican Jerry Weller of Illinois was absent Monday. He voted yes on Friday.

    ___

    Democrats No to Yes (33)

    Hawaii _ Neil Abercrombie, Mazie Hirono.

    California _ Joe Baca, Barbara Lee, Adam Schiff, Hilda Solis, Mike Thompson, Diane Watson, Lynn Woolsey.

    Nevada _ Shelley Berkely.

    Iowa _ Bruce Braley.

    Indiana _ Andre Carson.

    Missouri _ Emanuel Cleaver.

    Texas _ Henry Cueller, Al Green, Sheila Jackson Lee, Solomon Ortiz.

    Maryland _ Elijah Cummings, Donna Edwards.

    Arizona _ Gabrielle Giffords, Harry Mitchell, Ed Pastor.

    Illinois _ Jesse Jackson Jr., Bobby Rush.

    Michigan _ Carolyn Kilpatrick.

    Georgia _ John Lewis, David Scott.

    New Jersey _ Bill Pascrell.

    Ohio _ Betty Sutton.

    Massachusetts _ John Tierney.

    Vermont _ Peter Welch.

    Oregon _ David Wu.

    Kentucky _ John Yarmuth.

    ___

    Democrats Yes to No (1)

    Washington _ Jim McDermott.
    Reply | Link to Comment
  •  
    Oct 06 03:44 PM
    Cramer needs to stop drinking while doing the show!!
    Reply | Link to Comment
  •  
    Oct 06 03:46 PM
    Cramer is depressing! He is a baffoon!!! Obama will put us into a depression for a long time just as Roosevelt did in the 1930's by raising taxes and promoting social programs that will make Americans more dependent on the US government which is what all socialists want. Let the markets correct themselves with the least amount of governmental interverance as possible.
    Reply | Link to Comment
  •  
    Oct 06 04:00 PM
    Cramer!

    Stop!

    You're frightening the children!
    Reply | Link to Comment
  •  
    Oct 06 04:06 PM
    I've always enjoyed Cramer, but he's often wrong. He just totally discredited himself supporting Obama, who's only track record is tax and spend. Why would we think he could handle the economy? Does it relate to campaign finance? That's the only thing he is familiar with. This country can't survive Obama. That's why the terrorists and the communist party of the US support him.
    Reply | Link to Comment
  •  
    Oct 06 04:27 PM
    longtermstocks: "Cramer needs to stop drinking while doing the show!!"

    Maybe he found Paulson's crack pipe. It was lost for a while over on Capitol Hill.
    Reply | Link to Comment
  •  
    Oct 06 04:48 PM
    HE COULD OF BROUGHT THIS TO MY ATTENTION A WEEK AGO!!!!!
    Reply | Link to Comment
  •  
    Oct 06 04:52 PM
    I think Cramer was paid to sugarcoat the actual chaos in wall street. Now, there's no one's paying him to do so. Greedy bastard. Guy has missed all of his pick's. Not even a little, "Hey people! Don't buy right now. I just don't know!"
    Reply | Link to Comment
  •  
    Oct 06 05:02 PM
    To set wizard1786 straight .. it was Hoover that got us into the depression, not Roosevelt !
    Reply | Link to Comment
  •  
    Oct 06 05:27 PM
    Cramer, before he recently embraced his bearish side, had called at least 10 bottoms in the past 6 months because he is emotionally tied to the day to day happenings in the market which transpires through his analysis via cnbc to his self image that has been fueled and fed during the last bull market by an eager public for his insights and expertise. Things are different now and he has been taken to task. Why, because his hubris has let many down, and he knows it, particularly with his questionable stock picks, especially amidst a downturn. Just as recent as a month ago he recommended RIMM at $105 mark even after the chart was telegraphing problems after dropping below the 200 day MA prior to it earnings announcement on bigger volume. He has also been emphatic on thinking the fed can save us from all that presently ails the markets. The same fed that contributed its' fair share in the construction this economic mess. That has also left people questioning his thinking with some ambivalence regarding anything he says now.
    Reply | Link to Comment
  •  
    Oct 06 06:37 PM
    blaming the CRA...the last refuge of the Fox news RNC appartichik talking point spin machine. I guess everyone has to believe in something; and they believe they will have another

    Deregulation had its run and now its over. Welcome back to the stodgy net interest spread commercial banking business with simple, efficient highly standardized and commoditized financial products ; at least we can hope that we are not yet beyond the point of no return
    Reply | Link to Comment
  •  
    Oct 06 11:38 PM
    Cramer,
    Get off the air! Depression? Please!!!! IT IS A DIFFICULT ENVIRONMENT BUT WE WILL NAVIGATE THROUGH THIS! I believe in having cash as an investment but I believe I will use you as a contrarian indicator and slowly put money back to work in the markets (bond and stock) as both have some very attractive opportunities.
    Reply | Link to Comment
  •  
    Oct 06 11:50 PM
    Cramer's last big call: The Financials bottomed in July.
    Cramer's new big call: Obama is better for the economy than McCain.
    Now I'm filled with confidence at the thought of an Obama presidency.
    Reply | Link to Comment
  •  
    Oct 07 05:23 AM
    Cramer sounds more and more like a mad dog barking.
    Rabies affect his mind too.
    Reply | Link to Comment
  •  
    Oct 07 06:02 AM
    Neither Obama or McCain would do a great job with a very difficult economy. I'd bet though that if you add up the cost of the current presidency to American taxpayers (mainly war related costs and associated excessive oil price), it would still be cheaper to have a democrat managing the budget. At least with tax and spend, you'd get some services as a result, instead of a vast sunk cost and a new Vietnam to slink away from.
    Reply | Link to Comment
  •  
    Oct 07 06:26 AM
    In the middle east we all know that McCain is winning. Alas both options are really bad. I suggest a third party.
    Reply | Link to Comment
  •  
    Oct 07 08:35 AM
    We can be pretty sure we're at a bottom if Cramer is telling us there is that much downside risk. If you follow his newsletter, he's been buying ALL the way down. He is such a permabull and it makes him a great contrarian indicator.
    Reply | Link to Comment
  •  
    Oct 07 08:55 AM
    how in the world can Cramer think Obama will magically find the qualities and experience needed to move us forward?
    Reply | Link to Comment
  •  
    Oct 07 10:16 AM
    For all the irresponsible perma-bulls on here, DOW at 8500 THIS year.
    Reply | Link to Comment
  •  
    Oct 07 11:04 AM
    Great, now I have to resist covering my short and going long oil just because Cramer said it's going to $50.
    Reply | Link to Comment
  •  
    Oct 07 11:07 AM
    poor cramer... somebody help, this guy is going insane...

    his desperation calls marked the bottom of this year long correction... just 35% on NASDAQ, not much....
    Reply | Link to Comment
  •  
    Oct 07 11:41 AM
    "The first step was passing the bank-bailout legislation. Now that it’s done—and if it didn’t get done we would have been looking at a guaranteed economic collapse"

    Cramer, you are an IDIOT!! The bailout cost us a Trillion that is better used elsewhere. Remember how it was so urgent to get the bill passed within days? And then the next day Paulson comes out with "it'll be about a month before we actually start buying debt." Real urgent, huh? Not just that...it is also a flawed, philosophically and morally wrong idea! The *only* real solution to this economic calamity is DRASTIC TAX CUTS and cutting government to the CORE!! Too much credit-based living is what got us here...playing shell games and resetting banks to begin more lending IS OBVIOUSLY JUST MORE OF THE SAME!! The real answer is to give people their money back so they can begin cutting down their debt and spending out of their wallets, rather than off of loans!

    "the critical issue will be presidential leadership. And while any president will be an improvement over the current one"

    BS. You may not agree with the war...but then just say so. Don't blame this economic mess on Bush -- look back to the Clinton "housing for all" push, which Dems like Barney Frank and Chris Dodd jumped on wholeheartedly! Greenspan and McCain (among others) both tried to warn about issues at Fannie 3 years ago...got shot down.

    "there is a growing belief on Wall Street that Barack Obama has the capacity to lead us out of this wilderness while John McCain does not. I’ll go a step further: Obama is a recession. McCain is a depression"

    Cramer: you are an IDIOT!! Obama wants to double the Cap Gains tax and also raise the div tax. Yeah, raise taxes on those who invest in America - that makes sense. And you do realize that small biz creates 80% of the jobs in the U.S.?! Obama will be destroying those jobs because many of those small biz owners report business income on personal tax returns, and will exceed his threshold for the rich who ought to be skinned alive.

    Oh...just heard in the news this a.m. -- Obama is now planning to push the tax increases out till 2010...never mind that businesses plan further out than a year or two. Taxes foreseen in 2010 will still impact hiring and expansion plans in *2008*.

    How else is an Obama presidency bad for America? Universal healthcare. You wanna see a black-hole budget?? Remember just how much trouble it is funding medicare already -- and that's just retirees and the disabled. Expand those numbers to everyone...and this country is done. We simply cannot afford that much waste.

    Look, people, socialism DOES NOT WORK!! I can hardly believe Cramer would advocate a guy for prez who is so anti-freedom and anti-capitalist. Obama is not *fit* to preside over this nation!!

    McCain -- you should not assume he is "another Bush". There are a few common threads -- both are Republicans, both are somewhat conservative. But the differences are vast: McCain actually fought in a war -- we all know the story; he *does* go against his own party when necessary -- to me, that says you can trust him to do the right thing, not what the party says (look at how Obama falls in line with the radical Dems on everything...no new change there, really); and I think McCain-Palin will actually work at smaller government...which IS THE THING WE REALLY NEED right now...not Obama's "grow the government, spend more, tax more" plan!!! And don't be fooled -- Obama WILL raise your taxes -- there's no flippin' way he abandons his PET PROGRAMS in order to keep his middle-class tax cut promise!

    McCain = slow recovery, then growth; Obama = ever-bigger government, and U.S. as the whipping boy of the world for 2 decades!!

    GET IT RIGHT, CRAMER!!!
    Reply | Link to Comment
  •  
    Oct 07 01:45 PM
    Okay, so oil goes to $50/bbl -- here's my prediction: we will never see gas under $3 again and grocery prices won't drop at all. My 401K is at a 17.8% loss this year and I expect it to drop by at least 25% by 1Q 2009 no matter who gets elected. Yeah, it's bad and getting worse.