Friday, March 20, 2009
(Cont'd from above)...

Jim (cont'd):   

Ben Bernanke... first of all, he's our favorite... he's reflating the economy, and it's a new trend. The market may have hated it today... No, I'm sorry, we need it... I think it's terrific. We need inflation right now, because we're like this deflated pool toy... You throw us in the water of international competition, and what happens?... We don't float, we sink... That's right, we're sinking.

But now, with all the money the Fed is blowing into the system, I think our companies will be able to float...

What's that mean for the market?...

First of all, the great reflation weakens the dollar, right... No currency trader wants to own a currency that's being debased by the printing presses... But the overseas consumers love it, because they can buy all this cool, decadent, fattening American food... our hamburgers, our Doritos... in addition to our primary export, and all the other fattening stuff... we export toxic bonds and collateralized debt obligations (i.e., CDOs)...

You've got to proud, as an American, to think about what we produce and sell overseas...

And the weaker dollar should eventually drive investors toward the "inflatables"... that do a lot of international business. For them, it should be a Godsend...

The people who object to reflation... they're thinking about it in big-picture terms... they look at the broader economy, and they think it will cause trouble... and one day, it will. That's called "top-down analysis."

Me, I'm a "bottoms up" kind of guy...

I like to look at individual companies and see what affects them. Some like to dream dreams of inflationary hobgoblins. I just try to help you make some money...

In the end, those of us who toil on conference call after conference call have heard the same thing over and over... We cannot take this strong dollar... we cannot make enough money in this environment... we're not getting people to buy our goods...

Wholly-great quarters have been turned into disasters because of the strength of our currency... It caught everybody by surprise... no one was hedged... well, some companies, but almost none... You can listen to a Heinz (HNZ) call, and be amazed that their overseas business had gone from double-digit growth to, in some places... declines... single digits... because of currency translation... The weakness here didn't help.

When the dollar is strong, companies that make money abroad get fewer dollars for every Euro or Pound or Yen they bring in... The result? Shortfalls, and nasty losses for you homegamers...

I've got to tell you, it's been so bad while I'm on one of these calls, that you can be on a tech company call, and you can hear about inroads made overseas... that you couldn't even see, because of the currencies they exchange were worth so little, and bought so few dollars, okay... when they translated it back into dollars, they couldn't buy as many dollars as we would have thought. You could be on an industrial call and hear how competitiveness has been so quickly eroded, because our dollar is so strong versus those currencies...

Now the dollar, at last, has weakened... We had a trend change. That matters.

This quarter should be different from what we estimated, after the last quarter, because we're reflating...

You have to think gold... okay... gold makes a lot of sense here... That's the ultimate hedge against inflation. That's why I've been recommending on this show, over and over again, that an essential part of any diversified portfolio should include gold. Remember, though, I told you to buy gold on the way down because, when it starts going up, it's too vicious, and you won't be able to buy it. Well, that's just what happened... $60 in a day... Cramer-fave, Agnico-Eagle Mines Ltd. (AEM), has simply gotten too high... for the moment, for the moment... If you didn't own the stock, you just say you missed it... You wait. You don't chase a stock that's up 19% in two days...

So that's the problem with gold. You have to buy it down. The moves are too swift. Eldorado Gold Corp. (EGO) still works.

Oil's another group that generally works as part of the reflation play... but that group has rallied too enormously this week. My charitable trust, ActionAlertsPlus.com, owns BP plc (BP*)... We talked about that last night, because it's got that terrific 8%+ yield. I think that's still worth buying at these levels... but I'd wait for the rest of the oil patch to come down before I'd buy anything...

But let's get back to my favorite... the actual weak-dollar consumer plays, because they're the real winners... companies that sell a lot overseas, in strong currencies, that will now get transferred into weak currency... the dollar... The profits here could be very big, and it's a total reversal from what's been happening, and from what the Street had expected...

And how do you find winners in these things, okay... Okay, which companies were people most worried about, because of the strong dollar... that's how I approach it, okay... Where was the big fretting?... Where was everyone just totally, totally afraid?...

Well, okay... Coca-Cola (KO), which is now being reflated... Let's see how that one does now... And McDonald's (MCD*)...

Both go together well at Mickey-D's, and both should work here. And I especially like McDonald's, because it got knocked around today, giving you a really good entry point on Monday. When you roll back the last bit of extreme strength in the greenback, you match that with lower commodity costs, you get an explosive combination that should be great for these two...

McDonald's gets 66% of its sales from abroad... Coke is 75% international. Thanks to the weakened Ben Bernanke greenback, both companies should see huge year-over-year increases in earnings from overseas. Commodity costs aren't likely to catch up fast enough to do any real damage.

Right now, McDonald's is rolling out fancy coffee and smoothies, and they are good, I've got to tell you... All of its locations should have that great Joe by the middle of the year, with smoothies coming in early 2010...

Business is solid. The company's same-store sales were up 1.4% in February. That doesn't sound that good, but wait a second... it beat Street expectations of 0.4%... a leap year issue. The U.S. saw a 2.8% increase, while the E.U. was down 0.2%. I don't expect that to continue with the newfound weaker dollar...

McDonald's is doing well in the U.K., France and Germany... Russia. And Germany is really the only place that's seeing the ill effects of the slowdown...

Don't forget, McDonald's also has the lower commodity costs on its side, thanks to the collapse of foods. The stock's only at 14x earnings... this is a superior growth company... with a 3.7% yield. You don't get that. Over the last five years, the company's only had an average of 2.2% and, if the stock came back to these levels, well, it would be at $79. This is like the Dollar Meal... it is too great for you to ignore... except for you snobs out there...

Coke should have more upside from the weak dollar, because more of its sales come from overseas... although it's fully hedged for the Yen and Euro for the year... That's okay. The gains are going to have to come from outside of Europe and Japan...

The company has still seen volume growth in all regions. They had a monster-good quarter, except for North America, where this business has been awful for ages.

Coke recently increased its dividend by 8%. Hey, how many of your companies did that?... Right now, it yields 3.8%. Again, the average five-year yield is 2.5%. I mean, this is a bargain. If it went back to where it's average is, it would be at $62 bucks... 20 points higher...

Insider buying like mad, and the thing that I was most worried about... an endlessly-rallying dollar is now history... Things go better with a weaker dollar for Coke...

Here's the bottom line...

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The Bottom Line!:     I want you to forget what the market said to you today, okay?... I'm telling you... inflation is back, and it's better than ever for this moment... And the best way to play the reflation trade... Well, you can try gold with Eldorado Gold Corp. (EGO)... Or you can try the El Doritos, and buy Coca-Cola (KO) and McDonald's (MCD*).

[verbatim recap]

[end of segment]

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