Wednesday, October 15, 2008
(Cont'd from above)...

Now, here's what we're doing... we're re-testing this low... Yes, today's massive decline was incredibly jarring. It was retched to watch a stock like Jones Apparel (JNY) take a 4-point dive on a 13-point basis... off of simple earnings miss... one that now brings the yield of this fine retailer to almost 6%. It's positively insane that a high-quality company like DuPont (DD) now yields more than 5%.

How about this oddity?... We had the Joy Global (JOYG) CEO on... that makes the mining equipment... They're buying back, what, about $2.5 billion worth of stock when the whole company is only worth a couple of hundred million dollars more than that.

How about a great growth stock like Philip Morris International (PM)? Hate smoking, like smoking... when you're over in Europe, they're still puffing right in your face, it drives me crazy... plus, it's expensive... but, anyway... that's got a 5.39% yield. That's ludicrous.

Now is not the time to panic. It's the time to realize how attractive some of these newly-high yield stocks these have become. And, believe me, because I am negative, we are only buying higher-yielding stocks. We need that kind of protection, if we're going to get on board, instead of stepping in front of the train.

We have to search history for a moment like this and I think I've found it. I had to go all the way back to the revolutionary war and found a guy named Patrick Henry and, sure enough, he told us... I Googled it... it's in Wikipedia... "Give Me Yield, Or Give Me Death"... It was something like that.

Anyway, why am I so sure we're better off now than the last time the Dow dipped below 8000 on Friday which is, by the way, 577 points lower than here... of which I think we're going to see...

Because, last Friday, we thought all of the banks were going under... all of them. We thought the Western financial world was finished... Now we know - courtesy of the creative Europeans, who have jump-started the credit market and something we've been unable to do - that things have actually changed ever so slightly for the better. Repeat after me: We are slightly, ever so slightly, better off.

The bank plan is a total game changer, as I talked about yesterday.

The last time the Dow was under 9000, remember, we thought Morgan Stanley was worth no more than a bad vintage of Mogen David (i.e., inexpensive wine brand)... We thought Goldman Sachs was going to be "Golden Slacks" on a 2 for 1 sale... buy one, get one... We were worried that our short selling friends were about to do a "Kesselschlacht" at Citigroup... What's that, my non-German viewers?... A battle of encirclement and annihilation... to put to sleep the bank that never sleeps, but seems to know how to nap a lot.

This time, these same institutions are going to be saved... even if you and I think they shouldn't be. I believe that many stocks with big dividends that the companies can afford to pay... meaning they don't need to borrow to pay them... will actually make a stand at those October 10th lows that we got at 9:30 in the morning... It will be a stand... There will be some survivors... not all of them... not all stocks... but many of them, as stocks don't tend to bottom as a group.

Some stocks were hit so swiftly, and with such brevity, that I have to believe that we can be down there bidding for high-yielding stocks when it's really ugly... you put a little bid in underneath, and you get hit... well, we might have some buys which will actually last until the economy turns around... and you'll be paid to wait, because we're buying dividend stocks... something that can happen, if the government keeps pumping out money, along with the Central European bank, the Chinese and the Fed cutting rates.

There's a lot of guys on TV saying it doesn't matter if you cut rates. These guys are like wanting to raise rates, when I was demanding that we cut rates. I have a word for them, and the word is, "wrong"...

Monday's rally turned out to be a big phony in retrospect. It was a "liar, liar, pants on fire" rally. And I hope that you sold into yesterday's opening highs, as I suggested here. There was just no way those rally prices could hold. They were phony... The last 15 minutes, Exxon Mobil (XOM) goes up $10 billion (in market cap)?... Give me a break!

Right now, the non-dividend payers are really leaps of faith... even the oils like Exxon Mobil (XOM) and Occidental Petroleum Corp. (OXY)... they've been crushed... especially because the oil commodity seems to have no bottom.

On Mad Money, we no longer trust earnings estimates... so we no longer regard stocks as cheap. But dividends? A different story. Where there's a 4-5% dividend, you know you've got a cushion. At 6%, you've got Nirvana... Without a juicy dividend, I don't think a stock should be bought until the S&P hits 830, and the Dow's down to below 8000, more than 8% down from here, and back through Friday's lows... where I believe there'll be some more floors...

Now, listen... this is really important... You don't just go buy these stocks when they hit these levels. What you do is you should scale in. Read Real Money, if you don't understand this. Scale in... Buy the yield, not buy the price. I don't care if a stock's at $23 and then it goes to $21. I want the yield to be 5% and then it goes to 6%. Use the yield as the way to decide what level to buy.

Only the size and the safety of the dividend matters anymore.

Now, not everything's better than the last time we got pulverized... We got some worse-than-expected earnings. We didn't have those last week... We got a further decline in the Baltic Dry Index, something I monitor everyday... and that continues to plummet at an incredible rate, and is the reason why the cyclical stocks can't get any traction, because it's a sign that China is still slowing down. This must be the "great leap" backward...

We have commodities continuing to get polaxxed... just laid to waste... All of these things are signs of a severe recession to come. But we knew that already, right... That's not a shocker.

You have to be thinking that, at some point within the next year, these companies with big dividends will be in better shape, because the industrial economy will begin to reflect some of the money that's endlessly being pumped into the system. That's the only reason I'm even willing to be a buyer. I get paid to wait with the stocks I'm talking about. 90% of the stocks that are in the market are not paying you to wait, so we're just going to take those off the table for now.

Things are simply better than they were the last time we hit these levels, so don't panic. Pick at the stocks that can work...

Some of these cyclicals that are pretty good, with good balance sheets, have become high yielders, because of astonishing (stock price) declines... the stocks that are trading near cash or their liquidation values. And then, once again, even though we had to take some pain today... Can you eat it, drink it, smoke it, medicate with it, or wash with it?...

If you still need money in the next five years, I am not backing away from that controversial call I made a week ago, when the Dow was at 10,000... one that many people didn't want to hear... that you should still make sales to cover the costs... major costs... of what you might have to spend. But you've still got to sell into strength (as opposed to just selling at any level)... And I am certainly not backing away from my call on September 19th, when the Dow was at 11,000, which said you should sell 20% of what you own... As the papers have been saying... "good advice," if I say so myself, frankly.

Most stocks are just houses of pain, that won't help you pay for that tuition or car or house or retirement home, for that matter, which is why sold stock for my 17-year-old... well, a mutual fund... because she is about to go to college. I'm not touching my 14-year-old's... I'm still putting money in the market.

I have five-year faith but, less than that, I don't.

Here's the bottom line...

The bottom line!:   Now, I know this decline is scary... The decline is scary... It may not be finished. But, now that a wholesale failure of the financial system has been taken off the table, we can't be as fearful as the last time the market was at these levels. We are better off now than the last time we were, so you are free to so do homework... so pick up some high yielders, and put them away.

Read Jim's next Segment here