Mad Money w/ Jim Cramer 12/9/24

Summary

Mad Money w/ Jim Cramer – Episode Summary (December 9, 2024)

Release Date: December 10, 2024

Introduction

In the December 9, 2024 episode of Mad Money with Jim Cramer on CNBC, host Jim Cramer delves deep into the current stock market landscape, highlighting significant movers, investor behaviors, and sector-specific insights. This episode offers a comprehensive analysis suitable for both seasoned investors and newcomers navigating Wall Street's complexities.

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1. The $100 Billion Club: Major Gainers and Market Dynamics

Cramer begins by examining companies that have recently surpassed the $100 billion market capitalization mark, emphasizing their impact on the current market zeitgeist.

• Nvidia's Dominance [02:15]

  "When you have that trillion dollar cover, you can't sneer at companies that put on a lot of points in 2024."

  Nvidia's stock surged 180% year-to-date, benefiting from its pivotal role in AI and semiconductor industries. Cramer notes that Nvidia's influence allows investors to rationalize paying premium prices, even double what they did a year ago.

• AppLovin's Meteoric Rise [04:50] AppLovin experienced a staggering 907% increase, skyrocketing from $13 billion to $121 billion, with peak valuations reaching $142 billion. Despite a temporary 15% dip due to exclusion from the S&P 500, Cramer remains optimistic about its pivot towards e-commerce leveraging mobile gaming technologies.

• Palantir's Explosive Growth [07:30] Since its direct listing in 2020, Palantir has transformed into a powerhouse in military data analysis and AI. Cramer highlights its potential to revolutionize defense budgets by offering cost-saving solutions and advanced data processing capabilities.

• Spotify's Subscription Success [09:10] Spotify's 165% surge is attributed to the strength of its subscription model, mirroring successful strategies from Netflix and Amazon. Collaborations with high-profile artists and podcasters have fortified its market position.

• Private Equity Giants Apollo Global and KKR [11:00] Apollo Global and KKR each rally 93% and 91%, respectively. Cramer points out the trend of startups staying private longer due to the challenges of public offerings, favoring private equity investments as a lucrative alternative.

• Other Notable Movers

  • ARM Holdings: Up 87% with its strategic position in semiconductor architecture.
  • Progressive and Chubb Limited: Progressive surged 60% leveraging AI in pricing, while Chubb increased by 26%.
  • Citigroup and Palo Alto Networks: Citigroup entered the club with a 45% return, and Palo Alto Networks added to its gains despite recent volatility.

Cramer emphasizes that while these gains have created substantial paper wealth, the rapid influx of capital can lead to market vulnerabilities.

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2. Airline Stocks: A Structural Shift and Sustainable Growth

Jim Cramer provides an in-depth analysis of the remarkable rally in airline stocks, attributing their success to strategic capacity management and structural industry changes.

• Record Rally and Performance [14:32] The US Global Jets ETF has soared 53% in four months, with individual airlines like Delta up 70%, United Airlines a staggering 159%, and American Airlines nearing 90% gains since August lows.

• Capacity Management as a Key Driver [16:45] Historically, airlines overextend capacity during boom periods, leading to price wars during downturns. This year, airlines have exercised discipline by limiting new capacity growth to low single digits in the second half of the year, enhancing pricing power and profitability.

  "The single most important positive development for the airlines over the past few months is the fact that domestic airline capacity has stopped going up as much as in previous years."

• Influence of Low-Cost Carriers and Supply Bottlenecks [19:20] Struggles among low-cost carriers like Spirit Airlines and Southwest, compounded by Boeing's production issues, have contributed to reduced oversupply in the industry. This bottleneck has further strengthened major carriers' market positions.

• Valuation and Future Outlook [22:00] Despite substantial gains, major airlines like United and Delta remain attractively valued, trading at around 10 times earnings estimates, well below the S&P 500 average. Cramer is optimistic that as long as airlines maintain capacity discipline, their growth trajectory remains sustainable.

  "As long as the airlines don't add too many new flights, I think the major carriers like United, Delta, and American, they can keep on flying."

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3. Investor Complacency: Warning Signs in Market Indicators

Cramer expresses concern over signs of complacency among investors, using two key indicators: the CBOE Volatility Index (VIX) and junk bond spreads.

• Low VIX Levels [25:10] The VIX, a measure of market volatility expectations, is hovering around 14, its lowest since early July, indicating reduced investor fear and confidence.

  "When the VIX goes gets this low, it shows that investors aren't thinking much about what can go wrong."

• Narrow Junk Bond Spreads [27:35] Junk bond spreads have reached their lowest point since summer 2007, suggesting that investors are not adequately compensating for higher-risk corporate bonds.

  "When you look at the volatility index at trading at low levels and junk bond spreads getting their lowest interest rate premium since 2007, it is clear we've got an overabundance of complacency in this market."

Cramer warns that such complacency can lead to significant market downturns, as historical parallels indicate potential for substantial pullbacks when investors overextend their risk appetites.

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4. Caller Interactions: Stock-Specific Advice and Insights

Throughout the episode, Jim Cramer engages with callers seeking advice on various stocks, providing nuanced perspectives tailored to individual queries.

• Datadog and MongoDB [09:21] Caller Dave from Illinois asks about Datadog's performance.

  "Up some, you know, some days Datadog is such a winner."

  Cramer acknowledges Datadog's growth but also recommends considering MongoDB for its strong performance.

• Coca-Cola Investment Strategy [10:22] Caller Craig from California inquires about taking a long-term position in Coca-Cola.

  "I think it is... You want to bet that a stock will come down to your levels that makes you feel more positive as it gets hit."

  Cramer advises strategic buying during price dips to average entry points, emphasizing Coca-Cola's strong dividend yield.

• Apple Amid US-China Tensions [29:08] Caller Susan from Texas questions selling Apple shares due to geopolitical tensions.

  "I am a big believer in owning Apple, not trading it."

  Cramer remains bullish on Apple, highlighting its resilience and potential growth even amidst geopolitical challenges.

• Intel's Foundry Business and Estee Lauder's Valuation [30:28] & [30:53] Bill from Massachusetts and Sam from Pennsylvania seek insights on Intel and Estee Lauder.

  "You know, not now. Let's just wait."

  Cramer recommends holding off on Intel due to current uncertainties and expresses reservations about Estee Lauder's valuation, preferring competitors like ELF for their value propositions.

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5. The Pet Industry: Chewy vs. Petco Analysis

Cramer explores the divergent performances of major players in the pet industry, assessing the ongoing humanization of pets trend.

• Chewy's Resilience and Growth [31:20] Despite a recent 7% sell-off due to conservative guidance, Cramer highlights Chewy's strong fundamentals:

  "Chewy's Vet Clinics business also continues to show some promising signs."

  Chewy's expansion into Canada and successful customer acquisition through vet clinics bolster its growth prospects.

• Petco's Mixed Performance [33:15] Petco reported improved revenues and same-store sales but faced concerns over lower-than-expected guidance.

  "Management remains excited about the recent launch of their welcome to the family program."

  While Petco shows operational strengths, stock volatility remains high due to its low share price and recent market movements.

• Cramer’s Preference [35:00] Ultimately, Cramer favors Chewy over Petco for its superior business metrics and robust management, reaffirming the humanization of pets thesis.

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6. Lightning Round: Quick Stock Opinions

In the high-energy Lightning Round segment, Cramer offers rapid-fire opinions on various stocks based on caller inquiries.

• Alliance Entertainment vs. Live Nation [39:06] Cramer advises moving from Alliance Entertainment to Live Nation, citing the latter's stronger performance and better growth prospects.

• Big Bear (BB AI) and Nebuchadnezzar Investments [40:07] He expresses skepticism about Big Bear AI stocks, recommending investors focus on more stable AI leaders like Nvidia.

• Novavax and Eli Lilly [40:50] Contrary to caller interest, Cramer downplays Novavax while highlighting Eli Lilly's significant buyback program as a positive indicator.

• Automation and Intel [42:08] Cramer suggests holding onto automation stocks due to their attractive valuations but remains cautious about Intel's foundry segment.

• Smith & Wesson SWBI [41:37] Despite a 4.5% yield, Cramer views Smith & Wesson as overly expensive, advising a cautious approach.

• PayPal and AI Investments [43:09] Cramer remains bearish on certain AI stocks within the fintech sector, recommending a focus on established players with strong fundamentals.

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7. Potential Advertising Industry Mergers

In the latter part of the episode, Cramer discusses a potential merger in the advertising sector, analyzing its implications for the industry.

• Omnicom's Proposed Merger [44:02] Cramer critiques Omnicom's offer to merge with IPG at 3.34 shares for every IPG share, questioning the viability amidst antitrust concerns.

  "If you were suggesting me that we could see Omnicom try to merge within a public group two of the largest advertising agencies, I would have laughed in your face."

• Regulatory Hurdles and Market Impact [45:20] He anticipates strong resistance from the Biden administration's antitrust regulators, likely blocking the merger to preserve competition.

• Shift to Data-Driven Advertising [46:05] Cramer observes a trend towards advertisers bypassing traditional agencies in favor of direct relationships with tech giants like Meta and Google, leveraging their vast data resources for targeted advertising.

  "Advertisers go directly to Matter for everything they need."

• Future of Ad Agencies [47:00] Cramer posits that without consolidation and adaptation, traditional ad agencies may become obsolete, unable to compete with the data-driven strategies of tech firms.

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8. Closing Remarks: Maintaining Market Vigilance

Cramer concludes by reiterating the importance of staying vigilant amidst market exuberance, emphasizing the need to recognize and mitigate risks.

"I have to keep them in front of you so you don't get too bullish, maybe cool down a little."

He urges investors to heed early warning signs like low volatility and narrow junk bond spreads to avoid potential market downturns, reminding them that complacency can exacerbate losses in volatile times.

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Conclusion

The December 9 episode of Mad Money offers a thorough exploration of current market trends, significant stock performances, and underlying economic indicators that signal investor behavior. Jim Cramer's insights provide valuable guidance for navigating the complexities of today's financial landscape, emphasizing strategic investment approaches and caution against complacency.

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Notable Quotes:

• Jim Cramer on Nvidia's Influence [02:20]

  "When you have that trillion dollar cover, you can't sneer at companies that put on a lot of points in 2024."

• On Investor Complacency [27:50]

  "It is clear we've got an overabundance of complacency in this market."

• Airline Capacity Strategy [16:50]

  "The single most important positive development for the airlines over the past few months is the fact that domestic airline capacity has stopped going up as much as in previous years."

• Chewy vs. Petco [35:15]

  "I think it's safe to say that the humanization of pets thesis... remains very much intact."

• On Potential Ad Agency Mergers [44:05]

  "If you were suggesting me that we could see Omnicom try to merge within a public group two of the largest advertising agencies, I would have laughed in your face."

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This comprehensive summary captures the essence of the episode, highlighting Jim Cramer's key discussions, insights, and strategic advice, enriched with pertinent quotes and timestamps for reference.

Transcript

[Jim Cramer]

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[Jim Cramer]

My mission is simple to make you money. I'm here to level the playing field for all investors. There's always a bull market somewhere, and I promise to help you find it. Mad Money starts now. Hey, I'm Kramer. Welcome to Mad Money. Welcome to kramerca. I'll be with my friends. I'm just trying to help you save a little money. My job is not just to entertain, but to explain. So call me at 1-800-7.3, CNBC or tweet me at Jim Cramer. It used to be a big deal to reach the hundred billion dollar club. Most companies will never ever see that market capitalization mark. It requires a tremendous amount of hard work and drive to get there. But given how buoyant the market's been lately, despite days like today where The Dow dipped 241 points as we declined.61% and the Nasdaq lost 0.62%, the $100 billion level means a lot less than it used to. As of last Friday's close, we had 18 companies that joined the club this year, 18 companies that are now worth more than $100 billion. And they perfectly captured the zeitgeist at the moment. So let's parse through to figure out what the heck's going on. It could tell us a lot. First, we know there's an umbrella that's changed things here. It's the umbrella of Nvidia. Here's a Stock that's up 180% year date. I know it doesn't act well right now. Please. Okay, it was at $48 at this time last year, 138 change today. When you have that trillion dollar cover, you can't sneer at companies that put on a lot of points in 2024. Nvidia allows people to justify paying almost double what they paid last year or in some instances, a lot more than double. Plus, stocks, like everything else, faced a bout of inflation, I think we'll call it. Still a problem. Well, I don't know. It's there though. So let's go through the biggest gainers that have joined the $100 billion club with all numbers as of Friday's close. The biggest move, and I know you think this is inflationary, is the staggering 907% windfall that comes from App Loving, which makes software that helps app developers grow the reach and monetize their apps. It's gone from 13 billion at the end of last year to 121 billion, although it was a lot higher on Friday, 142 billion today. The stock got clobbered down 15% because it wasn't added the S&P 500, something many traders were expecting. Anticipating gambling, one app love is adapting its stripes and leaning in and pivoting and using its learnings there worked in all the key buzzwords to become an early stage e commerce play that could be wildly successful. They're so good with their mobile gaming technology that they've decided to go all in with video game advertising. These are free mobile games that make their money by showing you ads. Is that worth an almost tenfold gain? The short answer is no, you don't have that much in a simple line extension. But what if the same technology could be used for all of e commerce? Now that's a much more exciting story and it's one being told right now. I can't fault anyone for suspending the rigor and believing there may be something very big here. Who cares if it might be pure magical thinking? Certainly not the investors. Just look at how the stock roared last week when lots of speculators swooped in betting that Applovin would be out of the SB500 for the close Friday. Now by the way, that's another thing that tends to happen to stocks worth north of 100 billion. It didn't happen. Now they're getting clobbered Next up is enterprise software company Palantir, which exploded on the scene this year with some big contracts and some big growth. Paltry came public via direct listing in 2020. Kind of hung out doing nothing until its sales finally took off and then, man, this thing was just a rocket ship. Palantir is the brains behind much of the military that we don't know about. They've been rallying against the big five military defense contractors. They don't like that gang. They think it frustrates everybody else. The firm uses advanced data analysis and artificial intelligence to help depending on see patterns, process data, lightning speed. Again though, I think Palantir's love because it's trying to upend the defense sport, potentially saving tens of billions of dollars and saving the lives of those who might be on the front line, such as precious pilots and very expensive jets. Buyers think the Palantir will reinvent our entire defense budget, which is entirely possible because these guys are tight with President Elect Trump. Third, no one talks about the meteoric rise of Spotify, the audio subscription company with popular figures like Taylor Swift, the Weekend Bad Bunny, Chapel Roan and Billie Eilish, as well as host of famous PODC broadcasters, including the influential Joe Rogan. Spotify rallied 165% year to date, joining $100 billion club as the Friday's close. Why did it suddenly take off? Simple. The market loves subscription models because they're sticky. Netflix, Amazon, Costco, all subscription businesses. They're raving successes. And now Spotify is too. Next is Apollo Global, a private equity firm that rallied 93% for the year. Join the $100 billion club as of Friday's close. Just like fellow corporate raider well, we don't really want to call MAP KKR up 91%. That's outstanding performance from two firms that truly know how to make money. It's odd to think that they could have such good years without ringing the register by taking their portfolio companies public. Maybe holding on to positions isn't such a bad move that these two private equity firms are part of a trend that allows startups to stay private longer internally because the process of coming public is brutal, with a lot of pressure from regulators and then from money managers. Well, I mean, this is a great way to go. Formerly these companies had to tap the public market for capital. Now they tap outputs like KKR and Apollo. We are having a tough time getting IPOs to market, which means the ones we do get get to tend to be priced too low thanks to a paucity of buyers and that's what I think happened with the stock of ARM holdings, the semiconductor architecture company that's part of Nvidia for all sources of gizmos. And it's all over the cell phone and servers too. Arms growing incredibly fast. And CEO Renee Haas has steered the company stock to an 87% return. Joining the $100 billion pantheon. There's a risk to Networks, which provides hardware and software that monitors data and provides solutions for the big data center companies. No Wonder stock rallied 83% yet it remains relatively unknown. In part because it's invisible. It makes so called white boxes. So what? So what? The money's not invisible. You can call it this one. Next we have Progressive. Now it's up 60%. This auto insurer is known to use more AI and pricing than any other company. It's joined by Chubb Limited, the property casualty ins insurance kingpin, which was up 26%. Not to mention insurance broker Marsh McLennan. That's up 20%. The insurance business is on fire. And we know from these egregious CPI numbers one comes out this Wednesday. They just keep raising rates. These three are winners for certain. That was big cluster with gains in the mid-50s. First up is Fiserv, the transaction processing company. You know there had to be one fintech, right? Then there's Eden Travel Trust holding, makes electrical components for the data center. Then there's automatic data processing. By the way, that's a company synonyms with growing payrolls. Isn't that an oddity when the Fed's cutting rates? Finally it's Boston Scientific which makes minimally invasive medical devices within the one. Mostly for the heart. Someone say it just builds a better mousetrap. Crude and somewhat denigrating, but true. A superior company. You want an anomaly? Hey, how about Citigroup with a total return of 45%. Enough to finally sneak into the $100 billion club. Not bad as part of a failings of banks that are finally getting their due. Last but not least, we've got a CyberSecurity company that CBC Investing Club members know all too well called Palo Alto Networks percent micron semiconductors does high bandwidth, 18% analog devices. That's Internet of Things up 11%. Big deal for Palo Alto. A huge journey undertaken by CEO Nikesh Aurora. But both Micron 80 are well if they're high. So the whole thing might be a bit of a comedown for them. I know we're experiencing a heightened market with expectations really running so hot that you can't believe that a presidential rally, or let's say an end of the year rally and a stock shortage rally are all in play at once. Many of these stocks got clocked today as part of a sell off that seemed to infect the year's best performers. I don't know how long it'll last. Maybe some great buying opportunities already. But the bottom line, when you get this much money coming in, you can see how all these companies can reach $100 billion, creating a huge amount of wealth, at least on paper. One more reason why it wouldn't be so bad if some of the winning investors in this market took something delicious off the table. Let's go to Dave in illinois.

[Caller]

Dave and Dr. Kramer, my mad short term S and P oscillator watching friend. How are you, Dave?

[Jim Cramer]

I am fine. I'm glad you called. Let me help. What's going on, Jim?

[Caller]

This 55 billion dollar NASDAQ 100 listed company operates an observability, easy for me to say, and security platform for cloud applications. It enjoys a high institutional ownership and has already achieved a 52 high last month. Of course, I'm talking about Datadog.

[Jim Cramer]

Up some, you know, some days Datadog is such a winner. I think there's a lot of companies that wish they had bought Datadog when it was still private. It's up substantially from then. And I'm going to throw in MongoDB, which reported tonight and also has a lot of the juice you're looking for. Dave once again always explains things to us. Maybe it has something to do with Illinois. Okay, let's go to Craig in California. Craig.

[Caller]

Booyah, Ski daddy, the Chill Master J.

[Jim Cramer]

All right, what's happening, my friend? What we got going?

[Caller]

I've had my eye on the stock here for a bit here. Beverage behemoth, there seems to be a pull back about 13% in three months, trading below its 10 year average. PE has a very juicy, tempting 3% dividend. I'm wondering, is it good time to take a position in Coca Cola long term? Right here?

[Jim Cramer]

I think it is. As soon as I got the 3%, I was going to come out and say, you know what, that may be it. That may be the level you can buy. Let's say you want to buy 100 shares by 25 here, by 25 and 60, 20 and then maybe by 25, 58, it probably won't get there. And then 25, around 55, you get a great average. That's the way you want. You want to bet that a stock will come down to your levels that makes you feel more positive as it gets hit while you build a better possession with a very good dividend. All right, we got a bunch of different rallies doubt types going on right now. I wouldn't blame anyone though if they wanted to take a little off the table because boy, we got some heightened expectations. Only money tonight can airline stocks cruise even higher? I'm seeing if they could gain attitude for the long term though. Then I'm taking a look at some signs of complacency in this market. Don't miss the clues I'm uncovering from the VIX and from the junk bond spread and later our pet stock still treats. In this tape, I'm breaking down the post earnings performance from two of the sector's top players, so stay with Kramer.

[Mad Money Announcer]

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[Jim Cramer]

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[Jim Cramer]

We need to talk about the remarkable run in the airline stocks over the past few months. After spending much of the year just trading sideways, the US Global Jets ETF has rallied an astounding 53% from its lows in early August, come to a three year high over the course of four months. Extraordinary run people. And that's just the average performance. Delta Airlines, one of them we consider the best of breed, has thrown nearly 70% of the same period. United is up an astounding 159%. Even some of the Australian majors have made great moves. American Airlines turnaround projects never shot up nearly 90% from its August lows. While I generally like the airlines, I've been constructed for much this run. I always, always say that these typically make better trades than investments. They're very different. So after this kind of run, my gut tells me maybe to ring the register before the music stops, the lights come on. But I'm also open to idea that maybe things, that things can change if there's reason to believe that the airlines are suddenly less cyclical, less boom and bust. And maybe this time really is different. So let's consider why these stocks have gotten so hot, whether the move is truly sustainable. This one's been fueled by a couple of things, people. Earlier this year, the airlines were weighed down by worries about the consumer. Those worries aren't necessarily gone, but with the Fed cutting rates, well, they're going to be diminished. Sure, people are less willing to spend than they were a year ago, but they're still there are still places where they're willing to spend, and travel seems to be one of those areas that remains strong. Plus, when you look at the statistics, consumer sentiment has been improving for the past few months. For example, the University of Michigan Consumer Sentiment Index, that bottom in July, it's been trending higher ever since. At the same time, it's not just about the consumer. We're finally seeing a major return of the business traveler post pandemic. Oh boy, that's fantastic for the airlines because business travelers are way less price sensitive. They like first class. They also tend to travel more regularly. But those are all cyclical factors that tied to the health of the border economy. That's not why I find the airlines intriguing here. That's boom boss. I'm much more impressed by some big structural change in the industry that many people aren't noticing. The single most important positive development for the airlines over the past few months is the fact that domestic airline capacity has stopped going up as much as in previous years. See, after Covid, we're still only gradually getting back towards pre pandemic capacity levels. But as the revenge travel boom happened in 2022 and 2023, the airlines quickly started to add more and more routes, take advantage of the moment. Historically, that is precisely why the airlines have been such bad investments. When business is booming, they add too much capacity. Then when business tapers off like it did earlier this year, they've got too many seats and that crushes their pricing power. But we've seen a big shift in that dynamic as we've gone from the first half of 2024 to the second half. In the first half of the year, capacity grew roughly 7% or so, which was above expectations. Not good. But while the numbers are still being tallied for the third and obviously fourth quarters, it looks like capacity growth will be in the low single digits for the second half. Melius Research analyst Connor Cunningham, who's been all over the airline resurgence, wrote about this in late October. Entering this year expected about 6 or 7% capacity growth in every quarter of the year and capacity growth came in above his expectations in both the first and second quarters. But now he's slashing capacity estimates for the final two quarters of the year. He even thinks we'll be exiting this year with domestic capacity growth barely in positive territory. And he's cut his capacity estimates 2025 to OH. So bullish is cunning. I'm right. Let's consider the case of United Airlines best performer. When the company reported second quarter results in July, they noted that the capacity had grown 8% year over year that quarter, reflecting industry wide trends. But they also said they believed that that that trend was ending. United explained that the industry would be removing unpropitable capacity in the second half of the year, especially in the fourth quarter. In October, United reported a BoG quarter. CEO Scott Kirby said I'm going to he very proudly said I'm going to quote it the inflection we spoke about on our last call has happened and we're seeing unprofitable capacity begin to exit the market leading to the expected domestic yield improvement, end quote. The company's chief Commercial officer Andrew Nutella then added Quote, unquote. Domestic capacity in 2024 was shaped with the expectation that the industry would remove unprofitable capacity in earnest at in Q4. As a result, United expanded slower than most during the first three quarters of the year. My capacity dynamics were less favorable. But importantly, our timing is right, tilting our growth to the quarter where the industry conditions would be the best, end quote. I can't believe that these guys are saying this stuff. So the airlines are thriving because they actually kept their word and collectively cut back on new capacity that gave them all more pricing power. But why did that happen? Well, some of it's because the low cost carriers are struggling. Spirit airlines drastically reduce the number of available flights if the regulars block them from merging with JetBlue. Well, that's what you expect from an airline that filed for bankruptcy last month. Southwest is also under fierce pressure from activist investors to improve profitability. These lower cost airlines, they've been a major source of supply growth over the past two decades, but they're no longer adding to the industry's oversupply as much as they used to, largely because they can't afford to. Otherwise. I bet you they would otherwise. I mean, I got to tell you, they've wrecked pricing over and over again. Not this time. Plus Boeing's inability to consistently produce new planes, well, that's created another major supply bottleneck that we didn't see coming. At the same time, the election was seen as a huge positive for the industry because Trump's antitrust regulators probably won't block deals like the Sprint JetBlue merger. We can't expect the budget airline to go bankrupt every year, but we could see the same type of impact if a couple of these low cost carriers merge. So can the airline stocks keep running? I'd say the strength can continue for however long the capacity discipline does. How long will be, I'm not sure. But for now, these companies are all saying the right things. And that's the first time I've all seen them come together like this. Plus, even though these stocks have now had huge runs, United just trades at 10 times this year's earnings estimates. Delta a little over 10 times earnings. Inexpensive is let's less than half the S&P 500 multiple. And if the industry can continue to exercise discipline when it comes to adding new planes, the estimates might end up being way too low in the end. The airline stocks have been white hot for months now, in part because the economy is doing better, but mainly because the industry stopped adding new planes willy nilly and it finally gave them pricing power. The bottom line as long as the airlines don't add too many new flights, I think the major carriers like United, Delta and American, they can keep on flying. Bye bye. They have money back after the break.

[Mad Money Announcer]

Coming up as the market's recent run created too much complacency among investors, Kramer's spotting some warning signs to be on the lookout for next.

[State Street Representative]

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[Jim Cramer]

We all know we've had a rip snoring post election rally on top of an already good year. Which is why I started urging you to be a little more cautious, calling out areas of excess that are bubbling up in certain commerce corners of the market and they worry me. I love a big rally, but it never pays to get complacent people. And unfortunately I'm seeing a lot more complacency than I'd like. People are taking their gains for granted and that rarely ends well. Where is this coming from? Let me give you some pivotal data so you know what I'm talking about. First, there's the CBOE Volatility Index, which is the VIX for short. Also known as the Fear gauge. It measures market expectations for near term volatility based on the Action S&P 500 options. When investors expect volatility, they pay more for options. That sends the VIX higher. That's widely seen as a sign of fear and uncertainty. When the VIX is low, it reflects a lack of fear confidence. And right now the VIX is pretty darn low. Even though it jumped today, it's still reading roughly 14. And if look before today's spike. It had basically been cut in half versus was trading at the end of October and was at its lowest level since early July. Again, not great. Now normally when the market's rallying, the VIX is supposed to go lower. There's nothing abnormal about this, but I certainly take notice when the VIX goes gets this low because it shows that investors aren't thinking much about what can go wrong. They're only focused on what can go right now we're getting more on the VIX later this week where the resident options and volatility expert marks a passion. But for now let's get to another measure of complacency that's less widely followed. But I'm going to try to do my best to explain to you. And that's called the junk bond spreads. Full disclosure, I'm a stock guy. I haven't dabbled much in the junk bond market. But this issue of junk bond spreads was put on my radar by someone I trust. And when you dig into it, well, you do see some truly worrisome signs, signs that I hope other people pick on. The pick up on that we're talking about tonight. See, junk bonds are corporate bonds issued by companies that are more likely to default than the highest quality borrowers. Typically the cutoff is a triple B rating from Standard and Poor. Anything at triple B or better is considered investment grade, whereas anything below triple B is junk or more charitably high yield. So let's say two companies issue new debt, some same principal amount, same terms, same basic details, all else equal, a company with a junk rates credit rating should pay a higher interest rate than another company with an investment grade credit rating. Just like you might pay a higher interest rate on mortgage or an auto loan if you got a sub optimal credit score. Makes sense, right? When we talk about junk bond spreads, that's the difference between the junk bond rate and the current yield curve for Treasuries, which are considered risk free. Junk versus risk free. Basically, the junk bond spread is the amount of extra interest that lower quality borrowers have to pay to account for the fact that they're more likely to default. Now in order to get a market wide view of what's going on with junk bond spreads, you typically need to find an index that aggregates a wide variety of junk bonds into a single number that serves as a proxy for the whole class of securities. When we were alerted that something interesting was going on in junk bond spreads, well what we did was we went to the IC bank of America US High Yield Index Option adjusted spread. I know, big mouthful. But you can find it going to St. Louis Fed's economic data repository. I think that their data is the best of all the Feds. So what does it show? Very, very low spreads for junk bonds right now. Specifically, the spread between Treasuries and junk bonds has now fallen to its lowest level in the past five years. Even lower than during the speculative mania in 2020 and 2021. In fact, if you take a longer term perspective, this index is at its lowest level since the summer of 2007. And you never want to be analogous to 2007. In other words, in the corporate bond market, investors aren't getting compensated as much for taking on the additional risk that comes with investing in lower quality junk bonds. The person who flagged this to me believes it's a sign that risk is not being priced correctly in the market. Again, this is about the bond market. So sure, you could say, hey Kramer, who cares about corporate bonds? Come on, stick the stocks. But, and I get that, I get that, but the common thread between the low VIX reading and the low junk bond spreads is again, complacency. Right now investors are willing to buy higher risk bonds without adequate compensation. That's complacency. Just like they're willing to be long stocks without adequate protection. The SB500 in options, you know, a little protection, little puts, maybe a lot more cash. And I argue you should also care about these junk bond spreads because just look at what happened when we've gotten to these low levels before. Before this recent dip to 17 year lows, the IC bank of America high yield option adjusted spread was at its lowest level since 2021. Just before the big market wide pullback. In 2022, we saw the S&P 500 fall nearly 30% peak to 12. Before that it was 2018, just before the big roughly 20% fourth quarter pullback that year. And then there's the big one, 2007. Right now this measure of junk bond spreads is at its lowest level since the summer 2007, right before the financial crisis kicked off. It was in August of 2007 when I ranted that the Fed knew nothing, they know nothing about warning signs going to the banking space. Now that was a very different situation back then. Back then I wanted the Fed to cut rates because they didn't see that so many banks were struggling or about to go under. Needed cash, need an infusion for the Fed. These days I want to avoid cutting rates too aggressively. I hope the Fed's watching these junk Bond spreads. If Wall street so in love with making risky investments, maybe Jay Powell can afford to hold off on more rate cuts for the moment. People are taking too much risk, too much speculation. I actually do think that the Fed's watching measures like this and might begin to slow play its rate cutting plans perhaps as soon as its meeting next week. The market still expects the Fed to cut rates next week for the third consecutive meeting. I like that. But even if that's the case, they could talk down the number of rate cuts we'll get next year. And I think that would cause a huge sell off in stocks, albeit one that might be viable given how strong corporate profits are. But no one's looking for it right now. Here's the bottom line. When you look at the volatility index at trading at low levels and junk bond spreads getting their lowest interest rate premium since 2007. That's right, the junk bonds, the lowest interest rate premium. It is clear we've got an overabundance of complacency in this market. I am not saying that's the end of the world, people. I just want you to keep in mind if something does go wrong, it's going to hit especially hard because no one seems to be looking out for potential negatives. Let's take some callers. Let's go to Susan in Texas. Susan?

[Caller]

Hi, Jim.

[Jim Cramer]

Hi, Susan. How are you? I'm a long time listener and really enjoy your show. Oh, thank you so much. Thank you. My question is, with all the tensions between China and the US and the upcoming tariff, do you think it might be a good time to sell some Apple? Well, I am a big believer in owning Apple, not trading it. I happen to think that Apple is expensive historically, but that tends to be when it comes out with some nice surprises to make it so it's not expensive as far as China goes. Let's take a look. Lululemon had a great number out of China. We know that China is going to do some stimulus. We just don't know the size of it right now. I am betting that Apple gets through this period. I know that that's not what's happened with Nvidia today, but I also want to own Nvidia and not to trade it. Let's just hold our Apple here. Let's see what happens. How about Bill, Massachusetts Bill?

[Caller]

Jimbo, first, I wanted to thank you and your daughter for Reddit. You got me in real cheap this year. I'm ecstatic. Thank you so much.

[Jim Cramer]

Oh, thank you. Yeah, that was, you know, that My kids basically one daughter who really just said, dad, you really got to start following this. I certainly will. I certainly will. Thank you.

[Caller]

Tell us. She made a club member very, very happy.

[Jim Cramer]

I will do that. Thank you.

[Caller]

I just wanted to ask, is there any salvation in Intel's foundry part of the business?

[Jim Cramer]

You know, not now. Let's just wait. Bill, you know, I don't want to get you in a situation that I think is not necessarily bottomed yet, so let's hold off. But I want to thank you for those kind comments. And my daughter's going to thank you, too. Hey, let's go to my home state of Pennsylvania. Sam in Pennsylvania. Sam.

[Caller]

Jim, how are you?

[Jim Cramer]

I'm doing good. How about you, Sam?

[Caller]

I'm all right, Jim. You know, listen, in this bull market, it's kind of tough to find value. But one of the companies that I was looking at that could be a good way to play the strength of the American consumer is Estee Lauder. The company did 15 billion in revenue last year. It's trading at 28 billion. I know they got some issues with Chinese consumer, but with that kind of working itself out the next couple of quarters, I'm curious what you think about estee Lauder, your 80 bucks?

[Jim Cramer]

Look, I think that I actually would prefer to own Elf. I know Elf seems expensive, but I think that their products are cheaper. I think Estee Lauder overplayed its hand in terms of how much it costs to shop. They do not realize that the consumer around the world has changed and is far more interested in value than the used to be. And I don't think they see a lot of value in Estee Lauder's products. It's a tough judgment, but that's what I have to conclude given the fact that the stock has performed so poorly for so long. Right, guys? There's a lot of complacency in this market and it does concern me. So if something does go wrong, it will be harder to recover because no one seems to be looking out for the negatives. I have to keep them in front of you so you don't get too bullish, maybe cool down a little. Hey, more mad money ahead, including my latest look at the post pandemic humanization of pets theses. Plus, where do I stand on today's ad agency merger announcement? I'm giving you my tech tape fresh off the headlines and all your calls. Rapid Fire. Tonight's edition of the Lightning round. So stay with Klayman. What the heck happened to the pet space for the longest time. I've been a big believer in the humanization of pets, that people are treating their cats and dogs less like animals and more like members of the family. That's especially true with all the pets people bought during the pandemic. Covid may be gone, but Fido still likely has a good eight years left. And that's eight years of food, toys and medication and living in your bedroom. But in the last week we've heard from two major pet plays, Chewy and Petco. Stocks reacted in very different ways. Chewy got slaughtered. Petco Storm. Then Petco gave up most of his gains today. So what's going wrong here? I Could we be looking at the dehumanization of pets? Let's take one by one Q reported last Wednesday and at first glance it looked like a pretty good quarter. Made sales, beat strong earnings for interest, tax appreciation, amortization. In part because this online pet food store management has rapidly growing rapidly growing ads business. Isn't that. That's what Wal Mart did. That's what Amazon did. Management even raised their full year forecast. So why the heck did the stock plunge 7% in response? Well, unfortunately Chewy stock came in what we call hot. It was up more than 23% in the month of November, anticipating exactly what happened. So investors were looking for any excuse to ring the register. In the end, Chewy sold off because of the guidance that management didn't give. Impressive while they raise their full year EBIT margin guidance, that forecast implies fourth quarter margins will be between 3% and 3.8%. Oh, Wall street was looking for 3.9%. I seems like a finicky reason for such a sharp sell off, but given how much Chewy had run in the quarter, you could argue the stock was priced perfection. That's a term you better get used to. You hear a lot of it. Of course, when you dig into the quarter, there were a lot of positive signs. Signs that make me want to recommend chewing the sweetness. For starters, the implied guidance for the fourth quarter only seems soft because of the timing from advertising investments. With the company leaning in during the current quarter because they're getting such a high return on investment, it's just a great opportunity to have to spend upfront. I get that. Chili also reported higher than expected active customers of 2120.16 million. Part of the reason they were able to deliver that revenue beat. And while net spending per active customer came in a little light, not good, it still represented yet another record high for the company. Plus Chewy raises active customer outlook. I don't know. To me, that is all very encouraging. Even more encouraging for humanization of pets, these management noted they're seeing normalization in the industry. Pet adoption growing in the high single digits to low double digits. Clearly young pet owners are sticking around and not just pointing their pets off on their parents. That wasn't enough. Magic also called out a strong cyber week for their business and noted the competitive environment is trending in line with expectations. Meaning the strength isn't just a product of Chewy slashing prices. Chewy's Vet Clinics business also continues to show some promising signs. Now there are six open. They might add two more by the end of the year. These clinics are exciting because they're bringing in customers who are new to Chewy. They come in via the vet clinics. These new shoppers are exceeding internal expectations. Buy a lot more from the website if they visit the clinics. In fact, more than half these new customers leave the vet clinics and place an order on Chewy site. It's working. Oh, and that's an improvement from last quarter. It's working even better. Very good sign. Meanwhile, Chewy's expansion into Canada remains on track. Company increasing selection brand awareness, including a partnership with the Toronto Maple Leafs. Hey, so what if they're currently in the midst of the longest Stanley cup drought in NHL history? They were number one on the chl. I'm sorry, in the CNBC NHL valuations list. I Isn't that as good as a cup? I don't know. So even though Chewy sold off Heart, I think it's in very good shape. What about Petco Health and Wellness, which has one of the best tickers on the market? Wolf Triple buy for Wolf. Wait a second, Petco reported after the close last Thursday and the numbers were better than expected, causing the stock to jump 7% in response. Deliver a nice revenue beat with 1.2% growth, up from.5% shrinkage in the previous quarter. Whoa, big switch. They said trends accelerated sequentially across all major categories, especially consumables and services. Petco same store sales grew by 1.8%, the soil looking 1.7%. That's also up from minuscule growth in the previous quarter. However, also similar to Chewy, there were some concerns surrounding the guidance. Petco's revenue revenue target for the current quarter was a bit below the consensus estimate. Meanwhile, their EBITDA guidance also came in light, as did the implied EBITDA margin range from 5.8 to 6.1%, substantially less than 6.6%. The analysts wanted, however, that wasn't enough to offset the other positives from the quarter, which is why the stock initially soared. Now when it comes to pet adoption environment, Petco was also a little more subdued in their commentary, saying that they're seeing the market as more flat, but admitted that they're in a self help situation and aren't looking to rely on the market for near term profit improvement. Now CEO Joel Andersen relatively new note on the call, any market improvement will just be quote, icing on the cake. End quote. Now there's probably a better pet metaphor to use, but that's not what they pay him for. Management also remains excited about the recent launch of their welcome to the family program designed to help first time pet pet parents find success with booklets, shopping checklists and discounts for services and essentials. So Petco seems strong, but out of nowhere the stock got obliterated today getting back all of its post quarter gains and then some. Some of the wild action might simply because Petco is a single digit stock currently trading at less than five bucks. Those are inherently volatile. One reason I much rather bet on Chewy which is far better business by any metric you can care to name. Not speculative, but you should like it anyway. Bottom line, as you look at these results from Chewy and Petco, I think it's safe to say that the imitation of humanization of pets thesis, I think it remains very much intact. If you actually want to buy one of these, I think you're better off with Chewy. It's higher quality, better balance sheet, much better balance sheet and certainly more sure footed management. Mad Money is back after the break.

[Mad Money Announcer]

Coming up, Kramer takes your calls. And the sky's the limit. It's a fast fire lightning round next.

[Jim Cramer]

It is timeless. Talk about my bicycles and then the lightning round is over. Are you ready? Ski Dax over. The lightning round clears in my start with BO in North Dakota.

[Caller]

Bo Master Kramer, thank you for everything you do sir. I appreciate it and I'm sure lots of people do as well. Got a two parter for you if you don't mind. I'm trying to explain to my son the negative rhetoric that buying and holding is not so bad. Like it can be a great thing.

[Jim Cramer]

Yes it can.

[Caller]

On the stock I have is Alliance Entertainment a ent oh, you know what?

[Jim Cramer]

We've got companies like Live Nation lyrics that we spent a lot of time with that I think are a much better choice even longer term. I totally agree with you on buy and hold but I think live we spend a lot of time with them it's at 133. That's the better buy. Really, really lucrative. You buy some here and then you put a little. Put a little way for the boy. That's the way to do it. Let's go to Nick in New Jersey. Nick. Booyah. Jim calling about Nebby NBIs. Big investment.

[Caller]

From your cash on hand, do I buy the dip? What do you think?

[Jim Cramer]

Okay, look, I've got to tell you, I think that we are in for a bit of a shakeout on these ones that aren't making money. I'm starting to see it already. I can't get behind Nebuchadnezzar if I want AI. I will go for Nvidia as it comes down. Let's go to Ken in New Jersey. Ken, yes. Thank you for taking my call, Jim. Of course, of course.

[Caller]

A big boot. A big booyah to you, Jim.

[Jim Cramer]

Thank you. Well, I appreciate New Jersey. Ah, Lavalette. Okay, let's get down there. My friends from Summit are there right now. Probably. What's up? There you go. What do you think?

[Caller]

Novavax?

[Jim Cramer]

No, I'm not a fan of Novavax. I mean I got an Eli Lilly that announced a gigantic 15 billion dollar buyback that's doing some many things right. Let's stay with the highest quality imaginable in what could be a little choppy moment for this market. Let's go to Jim in Texas. Jim, hello.

[Caller]

Hello, Mr. Kramer. Thank you for your education. I have a position in O Data in od. I've tripled my original investment. Almost time to pull the trigger and take some profit or.

[Jim Cramer]

Thank you. So these are consulting companies and you know what? This is now very expensive stock. And I just think if you take a little off the table, you can always get back in. Why don't we just, you know, I'm calling it Prudence. Let's go to Brian in Colorado. Brian.

[Caller]

Happy holidays, Jim.

[Jim Cramer]

Same to you.

[Caller]

Hey, wanted to ask you about an American small cab that got hammered after earnings last week. Is it a buying opportunity or buyer beware for Smith and Wesson swbi?

[Jim Cramer]

You know, I think it's actually, I'm quite surprised. I did not think it was that bad. It yields four and a half. Not my cup of tea. But I don't think it's a bad level to get involved. It's not expensive. Let's go to Rebecca in New York. Rebecca, hello, Mr. Kramer.

[Caller]

I really love your show.

[Jim Cramer]

I enjoy it very much. Thank you very much.

[Caller]

Sure.

[Jim Cramer]

I bought automation thanks to you.

[Caller]

Is this a good time to Take some profit.

[Jim Cramer]

No, it's only sells at 10 times earnings. The average stock in the S and P sells for around 20. Well, you can say some people say 25, some people say as high as 26. This is 10 times earnings. It represents a bargain to me. Only because the Fed's easy. Note the Fed weren't easing then. I would say no to that. Let's go to so called. So called in Pennsylvania. So called. Hey, Jim, how you doing? I am doing well. How about you?

[Caller]

Excellent, Excellent. Hey, I appreciate you taking the call. And my question is ups.

[Jim Cramer]

Boy, this thing has gone down so much. It's been such a disappointment. You're going to the holiday season now. Typically there's even more trepidation going to the holiday season. I think you. But you did just get the 5% yield. Now, the 5% yield did not stop DOW from going lower. It might not stop this from going lower. I still think this stock is too expensive going into the holiday season. Wow. Let's go to Fred in Massachusetts. Fred. Booyah.

[Caller]

Jim from Braintree Math.

[Jim Cramer]

Oh, fantastic. Braintree. That's like PayPal. What's happening? I want to ask you about AI.

[Caller]

A lot of AI stocks have moved nicely recently. In particular ticker BB, AI, Big Bear. Do you see the run continuing through New Year's?

[Jim Cramer]

I don't want to recommend a stock in the category that's losing so much money that's up so much. I'm sorry to be so. But I have to be. And that. Ladies and gentlemen, conclusion of the Lightning Round.

[Mad Money Announcer]

The Lightning Round is sponsored by Charles Schwab. Coming up, Kramer's sounding off on a potential deal in the ad industry and why it could be a sign of more mergers to come next.

[Jim Cramer]

Before the election. If you were suggesting me that we could see Omnicon try to merge within a public group two of the largest advertising agencies, I would have laughed in your face. Here's two companies that have competed head to head for years. They're ferocious competitors these days, though. The question is, are the old school agencies friction or are they valuable? Will too soon to be irrelevant entities come together as one under the roof of Omicron, which we learned this morning is offering.334 shares of stock for every share of IPG is the kind of deal you'd expect the Biden antitrust department or this Biden FTSE to go over the fine tooth comb before likely trying to block it. Or maybe they just block it almost immediately as a show of force. After all, I'm the kind of IPG or two of the top four ad agencies. You put it together, you don't have enough competition. It's a 4 to 3 deal. That's a big no no for the regulars. Easy to shoot down. They think this merger could drive out those who want to start advertising agents and stifle their innovation while price competition comes down. I don't forget these guys tried to stop a merger between two handbag companies claiming it would crush the competition department store level. So imagine what they have to say about eliminating a key competitor in a major larger situation. However, in reality. You know what? I don't think this 4 to 3 situation is all that dicey because the ad agencies aren't what they use to be. Just go back to the last meta platforms conference call, the old Facebook go. Listen what Mark Zuckerberg said. The founder and CEO said that he sees strong uptake from advertisers for his own generative AI powered image expansion. Much of that conference call had to do with disintermediating the advertising agents, cutting them out of the equation because now advertisers go directly to Matter for everything they need. You write them a check, they place the ad where it should be. Better place than any ad firm can give you because Metta has all the data on your customers and on you. But before you write a check to Matter, maybe you should write one of Google, which also has its own data store. Or even Arts competitor Trade Desk, which has spent more time trying to understand who should be seeing what to upend the old paradigm. Or maybe, just maybe, you go to Shopify and do what Harley Felson tells us to do. Last week, remember we had him on is let him, let him handle the whole advertising thing is Shopify knows how to reach even the most micro groups. Now you may think, oh come on Jim, the companies you're talking about, the potential clients there are so small it really doesn't matter. But that's something you think of only if you're focused on the short game. John Wren, who's been CEO of On the Consensus 1997, knows all about the long game. And he may see that at the pace, least the current pace things are going, there isn't much pressure for what now are very small companies in a highly competitive ad industry. One day, those smaller companies who use Shopify or Google or Matter Trade Desk, they might go back to the old way or paying for advertising, traditional big firms. But they can only do that if the ad agency still exists. If they can't merge, they might well go the way of the dinosaurs. It's more than likely though that these clients never go back because they've never been. One thing's for certain, the now departing Biden regulators hated thinking about the future. For example, they don't consider Costco or Walmart or Amazon a threat against Kroger, a grocer that once desperately to merge with Albertsons if they knew more about the business. They know that the threat from Costco, Wal Mart and Amazon is existential to the supermarkets. Got to hope that the new administration realize the big tech is an existential threat against little Omnicon and little ipg. That would be good for everyone, especially the customer who needs a robust ad agency business just to keep everybody honest. I like to say, as always, the bull market somewhere. I promise I'd find it just for you right here on Mad Money. I'm Drew Kramer and I'll see you tomorrow.

[State Street Representative]

All opinions expressed by Jim Cramer on this podcast are solely Kramer's opinions and do not reflect the opinions of CNBC, NBCUniversal or their parent company or affiliates, and may have been previously disseminated by Kramer on television, radio, Internet or another medium. You should not treat any opinion expressed by Jim Cramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Kramer's opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. To view the full Mad Money disclaimer, please visit cnbc.com madmoneydisclaimer when you're with Amex Business Platinum, you have the card that helps you do more of what you love, like a flexible spending limit that adapts with your business. And with five times membership rewards points on flights and prepaid hotels booked on amextravel.com, going the extra mile for your business is even more rewarding. That's the powerful backing of American Express. Not all purchases will be approved. Terms apply. Learn [e-mail] AmExBusiness.