Cramer's spells out oil's worst case scenarios
With
the drop in the price of oil recently, Cramer outlines the worst-case
scenarios of what could happen. Could it really be that bad?
CNBC
Tue, Dec 2, 2014, 2:44AM EST - US Markets open in 6 hrs and 46 mins
Cramer's spells out oil's worst case scenarios
8 hours ago
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At what
point are oil prices too low to keep helping the stock market go
higher? Jim Cramer thinks we have found it, with declines across the
board seen in the Dow (Dow Jones Global Indexes: .DJI), S&P (^GSPC) and NASDAQ (^IXIC).
Sellers are worried that there could be something lurking under those
plummeting prices of oil, even as there was a $3 rebound from the
hideous oil session on Friday. But could it be that bad? Let's say that
oil really, really tanks due to excessive supply, mainly in the United
States, and the low demand from China's slowing growth and European
weakness continues. What are the worst case scenarios that could occur?
The "Mad Money" host shared his take on the repercussions of low energy
prices, to set the stage for what investors should expect.Read More What
the US should do to fight this 'oil war' Rails: There are certainly
ramifications of low energy prices beyond production. Oil companies use
rails in places where there is no pipeline capacity. With the decline in
crude, it will become too expensive to drill in places with no
pipelines.
Industrials: These companies are getting hit hard, including General Electric (GE), which has been noticeably present in the oil patch, and Dover, which was just downgraded from a hold to a sell.
Credit:
"I don't want to finger any one company because we don't know how
they're hedged, and we don't want to cause a panic. But there are stocks
down 30, 40 and 50 percent in a matter of weeks and it's not because
they're oil and gas companies. It's because they've borrowed a lot of
money to drill, more than their current cash flow can cover," said
Cramer. The extended credit could cause a real issue if stocks don't
come back up. However, there are positive ripple effects to gasoline
that Cramer thinks we cannot forget about. Gasoline is always a large
expense for companies that need to get their products on the market.
That means the numbers will favor those companies.
The
"Mad Money" host said the savings to the consumer far outweigh the oil
producers' losses, even considering the hundreds of thousands of workers
employed there.So what is Cramer worried about? The negative ripple
effect from overseas. If the collapse of Cyprus could affect the banks
in the U.S., then a collapse in oil-dependent Russia certainly could
have a large impact. Oil prices dropping are just a symptom to indicate
that it is getting worse. That could have a positive effect on the U.S.
economy, though. "They sell on their weakness, particularly their
currency's weakness regardless of the stocks they're associated with,
and they buy our dollar's strength with bonds and stocks." So while
Cramer does think there are many downstream repercussions, he still
believes it could be time to buy those stocks that are direct
beneficiaries to cheap gasoline.
----------------------------------------------------------
Read more from Mad Money with Jim Cramer Cramer says bye-bye to bonds
for retirement Never, ever do this with your 401(k) Cramer: Don't invest
without 3 things
---------------------------------------------------------- "In the end
though, the money flows here, and therefore any decline is buyable after
a couple of sessions of weakness," Cramer said. The "Mad Money" host
recommends buying stocks that are not so economically sensitive, such as
health care, biotech or travel and leisure stocks. The chain reaction
to low oil is just too good for Cramer to ignore. Yes, there will be a
downside, too, but he thinks that downside is manageable. Now is the
time to buy on oil's weakness. Questions for Cramer? Call Cramer:
1-800-743-CNBC Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine
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madcap@cnbc.com
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