Review: CNBC's Cramer Hit and Miss on His 2008 Predictions

There’s one thing about CNBC “Mad Money” host Jim Cramer – when he brings it, he brings it with a lot of gusto.

That was true for his end-of-2007 predictions for the upcoming year in the Jan. 2, 2008 New York magazine [1]. However, the mid-fall financial crisis put a serious wrinkle in many of those predictions.

The prediction at the top of his list was way off – that Goldman Sachs (NYSE:GS [2]) would finish the year at $300 a share:

“1. Goldman Sachs makes more money than every other brokerage firm in New York combined and finishes the year at $300 a share. Not a prediction—an inevitability. In fact, it’s only January, and I think it’s already come true.”

Oops – this one wasn’t one of Cramer’s better stock picks. Goldman closed at 215.05 on Dec. 31, 2007 and it was all downhill from there. The stock traded as low as 47.41 during the year, but has rallied since and is currently trading in the mid-80s.

His second prediction was about the price of oil:

“2. Oil goes much higher, maybe as much as $125 a barrel. That sends gasoline to $5 a gallon, even at those terrific service stations outside the Holland Tunnel.”

Oil went to $125 and then some, but not even stock guru Jim Cramer saw its precipitous fall to the mid-$30-a-barrel range [3] by the end of the 2008.

Cramer knew early in 2008 that Citigroup (NYSE:C [4]) was in over its head with the bad mortgages on its books and that it would require some sort of intervention or the nation’s largest bank [5] would be trouble:

“3. The Fed arranges an Arabic Heimlich maneuver on Citigroup, so the banking giant doesn’t choke on the worst mortgage portfolio in the country. Rather than face the demise of the biggest U.S. bank, and the panic its fall could trigger, Congress looks the other way as Arab investors buy 51 percent of the somnambulant bank.”

Of course, Cramer didn’t foresee the steps that would later be taken by Congress for the entire banking industry in the form of bailouts, notably the $700 billion TARP bailout passed in October. But he was onto something when he warned of Citi’s ills.

Cramer also predicted 2008 would be the year of the rise of Verizon (NYSE:VZ [6]):

“4. Verizon becomes your cable provider. In one of the most remarkable frog-to-prince transformations I’ve seen, Verizon CEO Ivan Seidenberg offers an alternative, Fios, that is better and cheaper than anything Time Warner, Cablevision, or Comcast can produce.”

Cramer’s Verizon prediction may be on hold in the wake of the credit squeeze, but Verizon stock has outperformed the S&P 500 (SP [7]) and the Dow Jones Industrial Average (DJIA [8]) since the end of October and continues to look strong.

Cramer was spot on with his next prediction and how much trouble the automakers were in, specifically Chrysler. Cramer said Chrysler’s holding company, Cerberus Capital Management, would seek a bailout from the government.

“5. [T]he combination of Chrysler and the 51 percent of GM’s lousy mortgage business that it paid top dollar for forces former Treasury secretary John Snow to seek a bailout for Cerberus. Amazingly, given the love of hedge-fund contributions by both parties, Congress agrees and writes checks for billions to save Cerberus’ wealthy investors.”

Cramer was wrong about Congress. The Senate thwarted efforts by the big three automakers to get money from Congress and Cramer was one of the biggest cheerleaders [9] for the bailout. However, the Bush administration eventually caved [10] and offered a loan from the U.S. Treasury to get the beleaguered automakers through until the new Congress starts and the Obama administration is sworn into office.

Cramer’s next prediction, about  tech giant Google (NASDAQ:GOOG [11]), was likely another casualty of the economic woes:

“6. Google continues its dominance and becomes one of the top three companies in the U.S. in market capitalization. It doubles its advertising share, at the expense of television and print. … The stock roars to $1,000. I like Google enough to put this one at 7 to 1. If you use an $800 target, make it 5 to 2.”

Win some, lose some – right? Google took a nosedive in 2008. It started the year off just barely over $700 a share, but is now a little over $300 a share and it even traded as low as $247.30 a share in 2008. It rallied some in late-April, was flirting with $500 in mid-August, and it’s been mostly downhill since, except for a late rally during December.

The next prediction was something of a European invasion – the weak dollar play.

“7. European companies, eyeing the weak dollar, snap up New York real estate, and offer to buy Merrill Lynch and JPMorgan. John Thain and Jamie Dimon, the companies’ respective CEOs, agree to the bids (Thain sold a chunk of stock to a foreign entity just last week). Colgate, Clorox, Whirlpool, and Black & Decker get snapped up, too.”

The dollar didn’t completely fall apart in 2008. Although it is weak by historic standards, it showed strength in the autumn months before taking a hit toward the end of the year [12]. That combined with the weakened economy hurt the chances of that prediction coming true.

Cramer also exhibited an early-2008 love affair with Apple (NASDAQ:AAPL [13]).

“8. Apple completes its dominance of the music business, as the music producers decide no longer to produce new CDs. It’s just too expensive for them. Warner Music Group files for bankruptcy. Apple goes to $300. Okay, these may not be 2008 events, but they will happen, sooner rather than later. This year: 25 to 1. Next year: 5 to 1.”

Like a lot of other stocks, Apple never took off, and as rumors about the health of Steve Jobs swirled [14] the stock has taken another late-year hit, currently trading in the mid-$80’s.

Cramer also foresaw the trouble at The New York Times (NYSE:NYT [15]), but he may have underestimated how bad off the “Old Grey Lady” was:

“9. The New York Times, after spending several hundred million dollars buying back its stock while it was in the $30s and $40s, slashes its dividend in half because of a cash shortage. The stock drops to $10. To save the world’s greatest newspaper, the company accepts a buyout offer from Mayor Michael Bloomberg at $20 a share. Don’t be so quick to scoff: The cash is spare change for Bloomberg, who, don’t forget, already owns a small media company.”

Granted, Cramer gave the odds of Bloomberg riding into the rescue at 100-to-1. But Times’ shares are trading in the $7-8 range and a Bloomberg takeover at $20 a share would be a blessing for shareholders at the end of 2008.

Cramer’s final prediction dealt with the housing crisis. He gave a march on Washington long odds, but he said if the Fed cut rates “meaningfully” it was time to buy.

“10. An Army of the Foreclosed marches on the White House, then launches a siege at the Federal Reserve, before camping out in front of the Washington Monument. The army demands relief from eviction. Bernanke, recognizing that he did nothing to regulate the mortgage mess in 2006 and then did not cut rates fast enough in ’07, resigns. The siege ends, the new guy slashes rates, and the market takes off. Here, the odds are 1,000 to 1 (as Marx taught us, people have a hard time losing their chains). But if Bernanke or a future Fed chair does cut rates meaningfully, here’s a sure bet: That’s the time to start buying.”

Bernanke is still in charge and even has won praise from the “Mad Money” host as of late. The Fed funds rate was cut to the bone – to a range of 0 - 0.25 percent, but there aren’t many buyers. And the only army to march upon Washington is the 1.5 million some are anticipating [16] for President-elect Barack Obama’s inauguration on Jan. 20, 2009.